Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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Boeing looks to produce about 220 MAXes in 2020
By Scott Hamilton
Jan. 30, 2020, © Leeham News: Boeing appears preparing to produce around 220 737 MAXes this year.
Spirit AeroSystems announced this morning that it reached agreement with Boeing to supply 220 fuselages in 2020.
The actual number of MAXes Boeing produces this year may vary from 220. It could well be that some of the 2020 fuselage deliveries spill over into 2021 deliveries.
With Boeing’s 737 MAX delivered to storage instead of customers, unique cost and revenue insights can be gained, Part 2.
By Bjorn Fehrm
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Introduction
January 30, 2020, © Leeham News: The last three-quarters of non-delivered Boeing 737 MAX production has exposed the internals of an airliner OEM as never before.
By comparing the second, third and fourth quarterly reports from Boeing for 2018 and 2019 we can get an understanding of the net revenue shortfall for the non-delivery of 737 MAX aircraft during 2019. By digging deeper into the reports we can also get an understanding of the present production cost of the 737 MAX.
Summary:
- The difference in revenue for a well-chosen time period of 2019 compared to the same period in 2018 tell the story of 737 MAX net revenue per aircraft.
- In principle, the same is valid for production costs which get booked into inventory instead of being delivered. Here more intricate adjustments must be made, however.
Boeing MAX production will restart, build slowly
By Scott Hamilton
Jan. 29, 2020, © Leeham News: Restarting production of the Boeing 737 MAX assembly lines will be slow, methodical and paced to avoid adding to inventory of about 400 airplanes in storage.
Boeing 737 factory, Renton (WA). Source: Boeing.
This was one of the take-aways from Boeing’s earnings call today. Boeing announced its first loss since 1997. This is when production of the 737 and 747 lines were shut down when rates outpaced the ability of the supply system to keep up.
Greg Smith, EVP, CFO and head of Boeing’s strategy, revealed the production restart in broad terms.
Boeing posts 2019 loss, IDs $9.2bn in additional MAX charges, costs
Jan. 29, 2020, © Leeham News: Boeing today announced a full year loss for 2019, as expected.
- Revenue of $76.6bn, GAAP loss per share of ($1.12) and core (non-GAAP)* loss per share of ($3.47)
- Operating cash flow of ($2.4bn); cash and marketable securities of $10bn
“We recognize we have a lot of work to do,” Boeing President and Chief Executive Officer David Calhoun said in a statement. “We are focused on returning the 737 MAX to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public.”
Boeing ended the year with $10bn in cash and marketable securities, down slightly from the $10.9bn at the end of 3Q2019.
Debt rose slightly to $27.3bn from $24.7bn at the end of the third quarter.
Calhoun faces first test on labor issues
By Bryan Corliss
Jan. 29, 2020 © Leeham News — Two weeks into the job, and new Boeing CEO Dave Calhoun is already facing his first labor-management showdown, with SPEEA, the union for engineers and technical workers at the company’s Puget Sound plants.
On Monday, the vice president of engineering functions for Boeing Commercial Airplanes sent a message to members of SPEEA at Boeing, saying that his team has agreed to meetings with SPEEA’s leadership to discuss “areas of contention between the company and the union.”
Chief among those is SPEEA’s charge that Boeing has been manipulating data used to help calculate annual pay adjustments for engineers and techs, while also allowing front-line managers to blow off annual performance reviews required for engineers and technical workers to determine who would be released first in the event of a layoff.
The union, through a spokesman, declined on Monday to talk about the accusations it’s made in writing about the wage issues. BCA’s VP of engineering functions, Todd Zarfos, said in his note that the two sides have “agreed to refrain from any further accusations and rebuttals about the identified areas of dispute.”
Instead, Zarfos said, they will “work together on possible solutions.”
Summary
- Blistering broadside on pay for engineers, techs.
- SPEEA goes to Legislature to seek end to “Boeing exemption.”
- IAM bargaining unit urges members to save for strike.
- Will Calhoun change management’s approach to labor?
Read more
Assessing airlines’ narrowbody replacement needs
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By Vincent Valery
Introduction
Jan. 27, 2020, © Leeham News: The Boeing 737 MAX crisis appears headed for resolution within a few months.
Stephen Dickson, the administrator of the Federal Aviation Administration, told American, Southwest and United airlines the MAX could be recertified by summer. This is the first time the FAA suggested a timeline—though anything could change this.
However, the entire commercial airline ecosystem has even less visibility on another key topic: once the 737 MAX returns to service, will airlines and lessors place new orders for what was Boeing’s best-ever selling aircraft?
Whether the 737 MAX can accumulate a meaningful amount of new orders will have far-reaching consequences on Boeing’s finances and product strategy. As outlined in a previous LNA article, it might take until 2022 at the earliest to return to the intended production rate (57/mo) before the grounding.
Even if not many airlines cancel their 737 MAX orders, Boeing will need to accumulate sizable new orders to keep the assembly line busy through the 2020s. Any clean-sheet aircraft design would only be ready in the late 2020s at the earliest. Boeing CEO Dave Calhoun expressed confidence in regaining the market share Boeing had before the grounding.
Is Calhoun’s optimism justified?
The most reliable market to accumulate new orders is the replacement of aging aircraft. In this article, we come up with a conservative estimate of the number of aircraft airlines still need to order or lease to replace older airframes. We will analyze the breakdown among customer types, as well as timelines.
Summary
- A significant number of aging narrowbody aircraft to replace;
- Different order and replacement mix at Airbus and Boeing;
- And airline fleet types;
- Concentrated order and replacement opportunities;
- Replacement needs timelines.
Pontifications: Back to drawing board on NMA, Boeing’s CEO says
Jan. 27, 2020, © Leeham News: Back to the drawing board.
So to speak.
By Scott Hamilton
There is no drawing board, of course, but, rather, computer design.
In his first media conference last week as president and CEO of The Boeing Co., David Calhoun is going back to a fresh start on evaluating what Boeing needs for its next new airplane.
The New Midmarket Airplane (NMA) and Future Small Airplane (FSA) appear dead.
That’s not to say, necessarily, restarting the analysis won’t conclude one of these concepts is the right one after all.
But something entirely new might emerge, too.
With Boeing’s 737 MAX delivered to storage instead of customers, unique cost and revenue insights can be gained.
By Bjorn Fehrm
Subscription Required
Introduction
January 23, 2020, © Leeham News: The last three-quarters of non-delivered Boeing 737 MAX production exposes the internals of an airliner OEM as seldom before.
The second, third and eventually fourth quarterly reports from Boeing can be compared to the same reports for the 2018 quarters. The differences in the numbers represent the production cost of the 737 MAX being booked as inventory instead of revenue. These values make for interesting reading as they give deeper insights into the production costs and net customer prices for the model.
Summary:
- When the MAX goes to storage it’s delivered to Boeing Commercial Airlane’s inventory.
- The net production cost appears in an increased inventory cost and the net customer price is missing in revenue.
- By careful comparison of the quarterly reports between 2019 and 2018, cost and revenue insights can be gained
Analysts react negatively to Boeing slip of MAX recertification
Jan. 22, 2020, © Leeham News: Boeing’s announcement yesterday that it does not expect recertification of the 737 MAX until mid-year drew generally negative responses from Wall Street aerospace analysts.
More charges and costs to Boeing and the supply chain are expected beyond what was anticipated in next Wednesday’s 2019 earnings call.
Below are the initial reports from analysts in notes received by LNA. The bold face type is in the original.
Pontifications: Another Calhoun challenge: fixing Boeing’s product strategy
Jan. 20, 2020, © Leeham News: David Calhoun has been CEO of The Boeing Co. for a week. A couple of new problems arose.
By Scott Hamilton
Late last week, the US Air Force weighed in that it’s unhappy, again, with Boeing over the KC-46A program. The Air Force was previously open about its dissatisfaction with Boeing’s performance. But top officials were quick to contact the new CEO with its unhappiness.
A new software problem was found on the 737 MAX which may add some time to the recertification timeline. The problem involves booting up two computers on start up and isn’t considered a big issue.
Last week, LNA posted a series of articles about Calhoun’s immediate challenges.
Last November, LNA posted a graphic that listed a host of problems that occurred under Denis Muilenburg’s watch. Calhoun must deal with these, too.
Today, we take a look at another challenge Calhoun must face: Boeing’s commercial airplane product strategy.