After Boeing surprised Wall Street Wednesday by eking out a net quarterly profit for the first time since the fall of 2019, CEO Dave Calhoun was upbeat about the company’s efforts to dig out from the most difficult stretch in its history.
“We are turning a corner, and the recovery is gaining momentum,” he told financial analysts in a teleconference call.
In a message to employees, he spoke of stability ahead and an end to job cuts as air travel recovers.
“Last fall, we planned to reduce the size of our workforce to about 130,000 employees by the end of this year,” Calhoun wrote. “However, with encouraging recovery trends … we’re now planning to keep our overall workforce size roughly consistent with where we are today, at about 140,000 employees.”
While he acknowledged big challenges and a great deal of uncertainty still ahead, that employment projection signaled a possible inflection point following Boeing’s shedding of some 21,000 jobs since the start of 2020.
The company’s downturn was driven by two consecutive major crises: first, the grounding of the 737 MAX, which lasted from March 2019 until late last year after two fatal crashes, and second, the pandemic, which reduced global air travel at one point in 2020 by 90%.
Now though, the MAX program is looking up.
By the time the Federal Aviation Administration approved the jet’s return to service, about 450 undelivered MAXs were in storage. That’s now down to about 390 stored planes, almost all of which are expected to be delivered by the end of next year.
Boeing has delivered more than 130 MAXs since the jet returned to service in December. Airlines also have returned more than 190 previously grounded MAXs to work.
Airlines around the world are flying about 1,000 MAX flights every day. Boeing’s MAX production line in Renton is turning out 16 jets per month now and gearing up to build 31 per month by early next year.
The one big uncertainty for the jet is when it will be cleared to fly in China. With U.S.-China relations at a low point, it isn’t clear if or when this huge market will open up.
For now, Boeing has shifted its delivery schedules, moving China deliveries into next year and bringing forward deliveries for other customers.
Calhoun said Wednesday that he expects clearance in China by year-end. He conceded that if this doesn’t happen, Boeing will have to lower projections for its future production rates.
The Chinese market is critical to MAX sales. In 2017, before the pandemic and when U.S.-China relations were better, about a third of the 737s Boeing built were delivered to Chinese airlines.
Calhoun insisted he’s optimistic that the Chinese will soon conduct test flights of the MAX and recertify the jet to fly in China again this year.
He noted that Chinese airlines have about 100 MAXs already in their fleets that they want to get into the air. The Winter Olympics scheduled to take place in China in February could be another air travel catalyst.
“They have a lot of natural incentive to want to do it,” Calhoun said. “Technical issues are being resolved. In fact, I think they’re all behind us.”
787 still a drag on Commercial Airplanes
Boeing made a net profit of $567 million in the second quarter, compared with a $2.4 billion loss a year ago.
Revenue for the quarter was $17 billion, up from $12 billion a year ago.
Industry analysts had expected a sizable loss, and Boeing’s shares jumped in Wednesday trading.
The financial data shows Boeing still burning through cash, but at a drastically lower rate than previously.
The latest quarter saw a free cash outflow — meaning net cash brought in from operations, minus spending on plant and equipment — of $705 million, compared to an outflow of $5.6 billion in the same quarter a year ago.
Executives said they project the company will turn cash flow positive again next year. One factor that will delay that target is the overhang of $51 billion in advance payments that Boeing took in from airline customers while undelivered airplanes stacked up.
So even as deliveries increase this year and next, many of those planes will have already been paid for, with minimal new cash added.
Boeing’s net debt increased slightly to $43.3 billion in the quarter. The company has $14.8 billion in bank credit available.
Though Boeing finally turned an overall profit, driven by its defense and space unit and its services division, the Commercial Airplanes division still lost money: $472 million.
The main drag there is the 787 Dreamliner program.
Boeing has been conducting extensive inspections and rework on flaws in the 787 airframe that have left small gaps between major sections of the fuselage. Its engineers are engaged in drawn-out discussions with the FAA about how to verify the manufacturing quality of every jet.
In the meantime, about 100 undelivered Dreamliners are now parked.
With the recent discovery of a new manufacturing quality problem, this time with a key structural part in the nose of the aircraft, Boeing has conceded that it will be able to deliver less than half of those this year.
It has temporarily cut the 787 production rate to less than five jets per month.
However, Calhoun said Wednesday it’s not that the FAA is holding Boeing back.
“This is not the FAA getting tough on Boeing,” he said. “This is Boeing getting tough on Boeing.”
He said after Boeing’s own inspections discovered that some sections of the jet were coming from suppliers slightly outside of the very close tolerances required in the engineering design, it moved to monitor the controls in place and fix the problems.
Though “the safety margins on the structural elements of our airplanes is huge,” he said, Boeing has to ensure that “every part and every airplane is built precisely to the drawings that we’ve created.”
The good news, he said, is that now is a good time to get these manufacturing problems sorted out.
“We’re producing at the lowest rate ever,” Calhoun said. “Customers are not knocking down our door to get their airplanes in light of the COVID impact on international traffic. And so we’re very determined to see our way through this.”
And once the problems are fixed, he predicted, the 787 will move from being Boeing’s problem child to being a “prized asset” among airlines as they prepare for an anticipated resurgence in international air travel and widebody jet demand in the second half of next year.
By way of proof of the 787’s solid future, Calhoun said that “during this COVID period, no widebody passenger airplane has been flown more aggressively.”
Global air passenger demand statistics for June, released Wednesday by the International Air Transport Association, showed a very slight improvement in both international and domestic air travel markets, though significantly below pre-pandemic levels due to international travel restrictions.
Willie Walsh, IATA’s director general, said in a statement that while air travel in some key domestic markets is improving, “international travel is nowhere near where we need to be,” with demand still 80% below 2019 levels.
“That’s not a recovery, it’s a continuing crisis caused by government inaction,” said Walsh.
While Boeing’s bread-and-butter market is the narrowbody MAX jet used for domestic travel, its historic strength and advantage over rival Airbus has been in widebody jets for international travel.
Only when that market recovers will Boeing be able to climb out of the current trough in business.
Material from Associated Press reporter David Koenig is included in this report.
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