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UPDATE – Boeing has slipped back into a Q2 loss again this past quarter, producing red numbers for both its Commercial Airplanes and Defense, Space & Security business units. The consolidated Q2 net loss was $-149 million, down from a $160 million profit in the same quarter last year. For HY1, Boeing almost halved its net loss to $-574 million from $-1.082 billion, the airframer reported on July 26. Boeing slips back into the red in Q2.
Yet, President and CEO David Calhoun is happy with a “solid second quarter with improved deliveries and strong free cash flow generation. We are well-positioned to meet the operational and financial goals we set for this year and for the long term. While we have more work ahead, we are making progress in our recovery and driving stability in our factories and the supply chain to meet our customer commitments. With demand strong, we’re steadily increasing our production rates across key programs and growing investments in our people, products, and technologies.”
Consolidated Q2 revenues increased to $19.751 billion from $16.681 billion in the second quarter of 2022. The quarter produced a $-99 million operating loss versus a $780 million profit, bringing the operating margin down to -0.5 percent from 7.7 percent. The positive thing is that the operating cash flow soared to $2.875 billion from just $81 million a year ago. Free cash flow ended at $2.579 billion against $-182 million.
Consolidated HY1 results show revenues of $37.672 billion, up from $30.672 billion. Boeing reports an operating loss of $-248 million, which fares positively against the $-382 million in 2022. Consequently, the HY1 operating margin improved to -0.7 percent from -1.2 percent. The core operating margin was -2.2 percent in HY1 and -2.0 percent in Q2.
Operating cash flow was $2.557 billion compared to $-3.135 billion last year, driven by higher commercial deliveries and payment timings. Free cash flow was $1.793 billion compared to $-3.747 billion. “Q2 has been a solid proof point,” said Calhoun, who added that the focus will continue to be on stabilizing operations. The supply chain continues to be “a significant challenge, but things are getting better.”
Boeing ended June with $13.8 billion in cash and marketable securities, $1.0 billion down on March. Net debt stood at $52.3 billion, down from $55.4 billion.
Higher operating loss for BCA
Now let’s look at Boeing Commercial Airplanes. The unit produced a $-383 million operating loss in Q2 versus $-219 million last year. Revenues grew to $8.840 billion from $6.258 billion. The operating margin was -4.3 percent versus -3.5 percent last year. In HY1, BCA reduced its operating loss to $-998 million from $-1.116 billion. Revenues improved to $15.544 billion from $10.452 billion, resulting in an operating margin of -6.4 percent versus -10.7 percent last year.
As reported, Boeing delivered 266 aircraft in the first six months, up from 216 in HY1 of 2022. The airframer recorded 460 net orders, which includes those for Air India and Riyadh Air for a combined 259 aircraft plus the firm order for 150 MAX from Ryanair.
Boeing says the -4.3 percent operating margin for Q2 reflects abnormal costs and period expenses, mostly related to the delivery delays of both the 737/MAX and the 787. Deliveries of the 737/MAX were affected notably in April and May by the production quality issue on the vertical tailfin fittings, but have gone up in June. Dreamliner deliveries were briefly paused over an administrative issue concerning the forward pressure bulkhead and slowed again by rework needed on the horizontal stabilizers after the discovery of a shimming issue.
But thanks to higher 787 deliveries (twenty in Q2, 31 in HY1), BCA generated higher revenues in Q2. Production of the type has now been ramped up to four aircraft per month and will go to five per month by the end of the year, resulting in seventy to eighty deliveries in 2023. The rate will go to ten per month in 2025/2026, as previously announced. Higher rates are not confirmed yet, as BCA President and CEO Stan Deal said in Paris.
By late June, there were 85 Dreamliners in inventory that all need joint verification work before delivery, but this is progressing well. All deliveries from the inventory should be completed by the end of next year. Abnormal costs of $40 million were included in Q2, in line with the projected $2.8 billion for the program.
MAX rate steadily going up to 38
Production of the MAX is in the ramp-up phase from 31 to 38 per month, but the focus remains on stability. “It will take some months before we will see a stable 38 aircraft coming off the line,” said Chief Financial Officer Brian West. There will be more rate breaks to progressively get the production to fifty aircraft per month in 2025/2026. “We are confident that the supply chain is ready to deliver on this. They have known about it for a while,” West said about the rate increase to 38 and beyond. “In terms of subsequent step-ups, the master schedule that is out there is clear. We will do a step at the time, but we are happy we can make this first move at 38.” Calhoun added: “Most of our time and applied effort in respect to the supply chain is focussed on starting readiness for rate fifty.”
Asked if the rate could go beyond fifty and even get to sixty MAX per month when the fourth assembly line in Everett is up and running, Calhoun said: “I would love to get to sixty and the market is out there, no doubt about that. For me, there is a moment in time that is really important with respect to the execution and the subject of stability. That is the second half of next year when we wind down all of our shadow factories (for the 787 rework) and can apply all of the labor to those rate increases. We have the labor in-house but now we get them to work on new airplanes. It’s just not a simple thing to do and I don’t want any of us ahead of ourselves. We just are going to stay focused and work on stability, but the second half of 2024 is a very important time for us.”
Production of the 777X is scheduled to be resumed by the end of this year instead of in early 2024. (Richard Schuurman)
Boeing reiterates its guidance for 400-450 737/MAX deliveries as outlined in its April guidance, but the airframer is under pressure to get this done. Not just because of the rework on the tailfin fittings, but production is also confronted with logistic problems following the collapse of a railway bridge over the Yellowstone River in Montana. Since then, 737/MAX fuselages need to be offloaded from railway cars on trucks, and transported by road, before being lifted on trains again for the final section to Renton. Calhoun said that these issues “will be remedied, but they will cost us some deliveries during the (third) quarter.”
By the end of June, Boeing had 220 MAX in inventory, including 85 for Chinese customers. Another 55 aircraft previously earmarked for Chinese customers have now been remarketed, in line with a plan that Boeing presented a year ago. The remarketing has been discussed with Chinese customers. Calhoun said that Boeing’s guidance is not dependent on these aircraft. Like that of the 787, the MAX inventory should be cleared by the end of 2024.
Boeing took another $136 million in abnormal costs on the 777X in Q2, but Brian West said that the total estimate has been lowered from $1.5 billion to $1.0 billion as 777X production should resume later this year rather than early 2024. Calhoun added that nothing has changed on the certification timeline, which is still expected for 2025. “This is simply our desire to get ahead of the production curve.”
Defense deeper in the red
Boeing Defense, Space & Security produced a $-527 million operating loss in Q2 versus a $71 million profit last year, with revenues slightly down to $6.167 billion and an operating margin of -8.5 percent. This was primarily driven by losses on fixed-price development programs “as well as continued operational impacts of labor instability and supply chain disruption on other programs.” The T-7A posted a $-189 million loss due to higher-than-estimated costs. The HY1 loss was slightly lower to $-739 million from $-858 million.
Boeing Global Services (BGS) is the only business unit to produce a profit in Q2, earning $856 million compared to $728 million. Revenues improved to $4.746 billion from $4.298 billion and the operating margin improved to 18 percent from 16.9 percent. The results reflect higher volumes and a more favorable mix. The HY1 profit is up to $1.703 billion from $1.360 billion, with revenues up to $9.466 billion from $8.612 billion. The operating margin for HY1 is also eighteen percent.
In its full-year guidance, Boeing reiterates its free cash flow guidance of $3.0 to $5.0 billion. Operating cash flow is guided between $4.5 and $6.5 billion, to which BCA should contribute $2.5 to $3.5 billion, BGS with $2.5 to $3.0 billion. BDS is expected to produce a negative cash flow of between $-1.0 and $-0.5 billion.
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