Insight Friday 7 August 2020: Is Boeing too big to fail?

News:

Boeing has now formally informed the world that it may now be in a “forward loss position” on the Boeing 787 and Boeing 777X aircraft programs. Let’s translate that into English from accountant-speak.  What it really means is that the company will likely never make a profit on those two aircraft programs.

This was expected for the 787, which incurred massive development costs during a three-year delay, followed by a safety grounding after entry into service. The 777X simply hasn’t sold well, and while Boeing has not yet established a formal accounting block for the program, it is clearly costing much more money than planned. With an anticipated low production rate of two per month, the demand for 777X is substantially lower than what Boeing initially expected.

With the likely consolidation of 787 production facilities from Everett into Charleston, that leaves the 777X, 767F, and KC-46 in Everett. That would mean additional facilities overhead would need to be absorbed by the 777X once the 787 line in Everett closes, exacerbating the issue.

Combing today’s warnings with prior disclosures of “forward loss positions” for the 747-8 and KC-46 tanker, the only remaining profitable civil programs are the 737 MAX and 767 Freighters.

With the MAX maintaining a substantial backlog (despite more than 800 cancellations this year) the program technically may not be in a forward loss position as yet. However, with high grounding costs and a prolonged recovery from the pandemic, Boeing is unlikely to deliver its entire backlog for this program. With slower production rates and lower margins, a future adjustment to a “forward loss position” has a high likelihood.

Analysis

Let’s look at the programs that remain active at Boeing.