Judging by headlines from January through March, Boeing’s first quarter was a nightmare.
The aircraft manufacturer lost a trade dispute with Bombardier in front of a US government panel. Suppliers fell behind on deliveries to the 737 assembly line. The engine for the 777X entered flight test several weeks late. A crisis involving hundreds of Rolls-Royce engines on operational 787s deepened, with dozens of aircraft now sitting parked on runways around the world. A new courtship with Embraer tangled up in complications with Brazilian government officials.
In spite of all those problems, Boeing’s financial performance in the first quarter may go down as one of the finest in the company’s century of history. On almost any metric, the company’s balance sheet glowed with impressive results.
In the first quarter alone, Boeing produced $3.14 billion in operating cash flow, which only a decade before would have been a respectable total for a full year. As it stands, it was enough to give Boeing confidence to raise full year guidance on cash flow by $500 million to an eye-popping $15.5 billion.
The company has never been more efficient. The quarterly operating margin rose to 12.3%, higher than Boeing’s full-year guidance of about 11%. Boeing still plans to achieve an operating margin in the mid-teens by the end of the decade, which possibly includes 2020. Long mired in single-digit operating margin territory, Boeing’s mid-teens margin goal once seemed wildly ambitious, but it’s now within striking distance.
Boeing’s financial performance smoothe over the rough edges of a quarter that clarified challenges still lying ahead.
Boeing is still in the midst of a trade war with Airbus, even as its home government attempts to ignite another one with China, the company’s biggest market. The commercial market remains on an unprecedented, extended growth cycle, but it’s not clear Boeing’s suppliers can keep up with serial production ramp-ups. The company is struggling to meet the US Air Force’s demands over converting a 767 into an aerial refueling aircraft, yet the 777X -- its boldest project since delivering the first 787 seven years ago – still lies ahead.
Boeing chief executive Dennis Muilenburg faced questions about many of those issues on an hour-long call with analysts and media on 25 April. As is his style, Muilenburg betrayed no concern that Boeing’s trajectory is approaching a plateau.
The Trump Administration’s threatened trade war with China is, so far, only a threat, Muilenburg reminds, noting that a high-level US delegation is traveling to Beijing next week to begin negotiations. Muilenburg acknowledged the shortages of engines and airframes from suppliers, but said those issues were well understood and there is a path to getting those suppliers back on track.
Moreover, business still looks bright. The 767 line, which once seemed resigned to the military conversion market, is showing new life as a freighter. Boeing plans to increase the production rate in 2020 to three 767s a month, resulting in six additional aircraft deliveries per year. There remains “upward pressure” on the 737 production rates, he says.
Nobody asked about concerns with the Rolls-Royce Trent 1000 Package C engine for the 787 family. For Boeing, however, the impact seems limited. It offers a choice of engine suppliers for the 787, and R-R’s problems have not dried up demand for the new widebody, as American Airlines’ recent order for 47 787s (powered by GE Aviation’s GEnx-1B engines) suggest.
Even within the 787 programme, fortunes have improved. American’s order includes 22 787-8s, a type that had gone 20 months without an order. Boeing has redesigned the aft fuselage and other areas of the aircraft to improve commonality with the 787-9 and 787-10, resulting in lower production costs with each delivery. According to Muilenburg, Boeing still sees future demand for the 787 concentrated around the 787-9 and -10, a statement that answers questions over whether a 787-8 revival spells trouble Boeing’s proposed New Mid-Market Airplane (NMA).
The NMA provided the only glint of negativity during the first quarter earnings call. In describing the timeline for introducing the proposed 200-270-seater with up to 5,000nm range, Muilenburg dropped “2024” as the earliest year the NMA could enter service. It is now described with a potential entry into service in 2025, but Boeing still is hesitant to make any commitment.
“We have not made a launch decision at this point. The timing of that decision is still TBD as we work our way through the details,” Muilenburg says. “We’re making progress and clearly advancing our analysis.”
Source: Cirium Dashboard
