Boeing has further revised its production rates for 2021 and 2022, it reported on July 29 at the presentation of its Q2 and HY1 results. The airframer confirms that first deliveries of the 777-9 (to Emirates) have slipped by a year and are now ‘targeted for’ 2022.
Production rate of the 777 and 777X will be reduced next year from the planned three per month announced last April to two per month. This compares to the current five. It reflects the difficult situation of long-haul travel which is expected to take to at least until 2024 to recover, IATA said only on Tuesday. Almost all 777X customers are said to have asked for delivery deferrals, including Emirates, Qatar, Etihad, Lufthansa, ANA, Singapore Airlines, and British Airways. The delay also reflects lessons to be learned from the MAX certification procedure.
Dreamliner rate down by one too
The situation of the 787 Dreamliner is little better, with dozens of aircraft awaiting delivery to customers that have little appetite for receiving them. Norwegian recently canceled its remaining order for five. This has forced Boeing to reduce the production rate for 2021 to six per month instead of seven as reported last April. Remember Boeing orginally planned to increase the rate to fourteen per month in 2022 from the current ten per month.
Even at the lower rate, the 787 will have a strong unit margin, said Chief Financial Officer Greg Smith.
In a letter to staff, CEO David Calhoun says Boeing is evaluation of the 787 production: “With this lower rate profile, we will also need to evaluate the most efficient way to produce the 787, including studying the feasibility of consolidating production in one location. We will share more with you following our study.”
This could mean either the Everett or North Charleston site is up for closure. North Charleston is only producing the 787, with the -10 exclusively built there as fuselage sections are too big to be airlifted to Everett. This could give the South Carolina plant the edge over Everett although the plant has suffered from quality issues and social unrest.
747 production to end in 2022
“At this time” the rates for the 767/KC-46 (three per month) and the 747-8Fs (0.5) remain unchanged, Boeing has said today. This is only for a very brief period, as Calhoun says: “While our 767 and 747 rates remain unchanged, in light of the current market dynamics and outlook, we’ll complete production of the iconic 747 in 2022. Our customer commitment does not end at delivery, and we’ll continue to support 747 operations and sustainment well into the future.”
The 747 backlog shows twelve for UPS and three for Volga Dnepr but the latter have been excluded in the ASC 606-adjusted backlog, meaning it is uncertain if the airline will be able to take delivery. With today’s announcement, it is unlikely UPS will be able to take delivery of all aircraft it has on order.
MAX production up to 31 only in 2022
Then there is the MAX, of course. Production has restarted in May at modest rates and was expected to increase to 31 in 2021, but this too has been revised. Boeing now expects rate 31 to be achieved at the beginning of 2022, with further gradual increases to correspond with market demand.
This is related to the pace of delivery of the 450+ stored MAX, which is first priority. The majority of the grounded aircraft should be delivered within this year with modifications done by either Boeing or the customer itself. So far, Boeing has paid $2.6 billion in liabilities to airlines out of $9.6 billion related to the MAX.
Calhoun ensured “transparancy at all stages” should lead to the safe return of the MAX to service, with deliveries expected to be resumed in Q4 depending in what the regulators decide.
Q2-loss -2.395 billion
Boeing Group announced a $-2.395 billion Q2-loss compared to $-2.942 billion last year, so that is actually an improvement. The operating loss was also lower at $-2.964 billion compared to $-3.3380 billion in 2019. Revenues were down by 25 percent tot $11.807 billion.
The HY1-results show a $-3.036 billion net loss compared to $-793 million last year. The operating loss was $-4.317 billion versus $-1.030 billion. Revenues for the first six months were down 26 percent to $28.715 billion.
Government programs through Defense, Space, and Security has provided Boeing a much-needed lifeline for the near future, although the division earned only $409 million in HY1.
Commercial Aircraft faired worst, with a net loss in Q2 of $-2.762 billion compared to $4.946 billion on $1.633 billion revenues, 65 percent down. HY1 results show a net loss of $-4.830 billion compared to $-3.773 billion on revenues down 53 percent to $7.838 billion.
The operating margin of Commercial dropped from -104.7 to -169.1 percent in Q2 or from -22.8 to -61.6 percent in HY1.
Boeing delivered just 70 airliners in HY1 compared to 239 in the first half of 2019. Of these, 36 were Dreamliners. Backlog is down from $376.5 billion to $325.6 billion as numerous customers have canceled orders for the MAX, which by the end of Q2 stood at -794 net orders. Calhoun repeated his remarks of Q1 when he said the retirement of older and less efficient aircraft will hopefully give the industry a boost.
The OEM has taken another $712 million in abnormal production costs related to the 737 MAX program and a $551 million “customer consideration charge” on the MAX, which in simple words means a charge for compensation costs for late deliveries. Closure of the production due to Covid-19 resulted in $133 million in additional costs while $468 million is attributable to severance expenses.
More redundancies on their way
In his letter to staff, Calhoun has notified them that further job reductions will be inevitable on top of the 10 percent announced for 2020. “Regretfully, the prolonged impact of Covid-19 causing further reductions in our production rates and lower demand for commercial services means we’ll have to further assess the size of our workforce. This is difficult news, and I know it adds uncertainty during an already challenging time. We will try to limit the impact on our people as much as possible going forward. And as always, we will communicate openly, honestly and transparently with you.” In April, Calhoun said Boeing will shed up to 16.000 employees at Commercial while Defense will continue hiring highly-skilled staff.
Global Services hit hard by groundings
Boeing Global Services has been hit hard by much-reduced commercial services as most of the fleet was grounded during Q2. The division ended the quarter on a $-672 million loss compared to a $687 million profit last year. For HY1, only a $36 million profit was left of what used tob e a $1.340 billion profit in 2019. A contract to convert four 767-300s into freighters for DHL was much welcomed as were defense contracts.
Global Services took a $923 million charge related to asset impairments and severance costs because of the Covid-market in which some customers might not be able to pay.
Boeing Group had a negative free cash flow of $5.628 billion in Q2 and even $-10.358 billion in HY1. Smith expect negative cash burn to continue until early 2021 and only improve once MAX deliveries restart again.
The cash position including marketable securities doubled in Q2 to $32.4 billion but at the same time its debt position worsened from $38.9 billion in Q1 to $61.4 billion by the end of Q2. The OEM raised $25 billion in new debt. Another $6.9 billion credit facility is available. Calhoun said Boeing still ‘intensively’ is seeking liquidity and continues all options to improve its position.