Monday Insight – October 30, 2023

Boeing Loss – Beyond the Numbers

How Boeing does will affect the USA economy, not to mention the health of the aviation industry.

A $1.6 B loss on $18.1 B in revenue is what Boeing just reported. For the folks spinning things from the stock price side, that is not pretty.

But looking at things from the long-term global airline demand picture, the real issues are not as dire as the numbers might indicate. Bright, actually.

Yes, Boeing is still having teething problems with the MAX, and the 787 program as well. Reportedly, they are locked into big-time loser contracts to build two 747-based Air Force One transports. These are being worked out, albeit expensively.

Re-Entry To China? Plus, it has been an unmentioned issue that Boeing has politically been mostly shunned out of the China market for net-new orders. This may change as Airbus is facing huge order backlogs, even with expansion of production at Mobile, Alabama and Tianjin, China. Airbus will be challenged in meeting global demand for the A-320neo series and the A-350/1000 widebodies.

But further down the horizon, the collapsing economy in China might make a lot of on-the-books orders turn into vapor. Also, unlike Airbus, Boeing doesn’t have exposure to a production line in China. It has a finishing facility only. In the longer term as things in China get more and more dicey, that might not be as much of a disadvantage as it may seem.

Airbus v Boeing Production. Boeing intends of build 38 737s per month by the end of 2023. Airbus is projecting 65 A320s per month in 2024.

The impact of this will go on to affect suppliers – engines, avionics, flight systems, etc. These companies are critical in crafting sales deals with airlines. For example, engine manufacturers like Pratt & Whitney and Rolls and GE come to the party in these agreements, with arrangements where their profits will be from future maintenance and support agreements over time, and not necessarily the sales price of the engines – which often is not completely factored into the airplane prices.

Their play is long term support agreements. With Airbus building more narrow-bodies than Boeing, this could put Boeing at a disadvantage in crafting sales deals in the future.

Nevertheless, Boeing Faces a Strong Demand Future. All this notwithstanding, there are still only two games in town when it comes to global airliner demand. The recent huge commitment from Southwest for 737-7s is an example. In any case, both Boeing and Airbus will have orderbook dance cards pretty much fully occupied into the future.

One observation: production-wise: Boeing can resolve certain supply chain issues and has the ability to go back to levels of 737 production approaching 60 per month.

Tilting At Chinese Windmills. Naturally, we have the internet gadflies warning that this is a real market opportunity for China’s domestic COMAC. Gee, the C919 looks a lot like an A320, so it might be the beneficiary of backlogs at Airbus and Boeing, right?

No way. Write this down: the DC-6B has a better chance than the C919 of breaking into the global airliner market.

The C919 is a performance dog and an embarrassment to China. COMAC has no global base, even if it weren’t produced by a government like the CCP, which makes Nazi Germany pale by comparison. Not exactly a great promotional issue for new buyers.

Like a lot of data coming out of the Middle Kingdom, the fact is that the COMAC orderbook is cooked with supposed demand from financial institutions and captive airlines. The only two airlines physically outside of China to order these planes are actually companies controlled by Chinese entities.

Future: Boeing is behind the curve compared to Airbus as far as single-aisle orders are concerned. And they reported some heavy financial losses.

But behind is not being out.


Touch & Go December 1 2023