✈ Can Boeing Mimic The Mythical Phoenix?

Alphabet reports big earnings beat.

Feb 02, 2022

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✈️ Boeing: Phoenix At Last?

Aircraft manufacturer Boeing (BA) reported its third consecutive annual loss last week. If the 737 MAX was Boeing’s Achilles heel back then, it seems it’s the Dreamliner’s turn now. Be that as it may, large orders keep coming in. Where do investors weigh in the scales of positive news Vs uncertainty? (Tweet This)

Nightmare With Dreamliner

When Boeing reported its first net profit in seven quarters last July, it seemed the aircraft manufacturer had put the 737 MAX woes firmly in the rearview mirror. Countries started allowing these planes to fly again. The company heaved a sigh of relief, but that was short-lived. Losses returned over the next two quarters, no thanks to the Dreamliner.

The 787 Dreamliner has been plagued with production issues for the better part of the last 15 months. A staggering ~$5.5B in costs is tied to manufacturing flaws. That includes a $3.5B pre-tax charge in Q4 and an additional $2B charge expected due to production cuts. This one-time charge led to Boeing posting a larger-than-expected loss.

Key Highlights From Q4:

Revenue: $14.79B Vs $16.59B expected
Loss Per Share: $7.69 Vs $0.42 expected
Debt Balance: $58.1B; down $4.3B from Q3

The pre-tax charge was enough to drag the company into the red for the third year in a row. The company lost $4.29B in 2021, narrower than the $11.94B it lost in 2020 at the height of the global lockdown.

Boeing’s nightmare with the Dreamliner threw customers into a tizzy. American Airlines has had to trim its international schedule due to delays in deliveries of the 787. Boeing is on the hook to pay penalties to American for delayed deliveries. While American is hopeful of taking Dreamliner deliveries in mid-April, Boeing isn’t yet committing to the timeline, which doesn’t bode well.

Boeing’s CEO, Dave Calhoun, acknowledged that 787 deliveries would take longer than expected. The company is working with the FAA to see what needs to be done to resume aircraft deliveries. Supply chain issues and labor shortages resulting from the pandemic only exacerbate the situation by creating raw material bottlenecks and logistical challenges.

Emerging From Turbulence?

The 737 Max was involved in two horrific crashes, which led to their grounding by the FAA. After Boeing went back to the drawing board to fix those issues, this model, which caused much pain in the past, is now generating cash for the first time in three years. Last year, Boeing delivered 340 jetliners, higher than the 157 it had delivered in 2020, but a far cry from Airbus’ 611 deliveries.

For Q4, Boeing reported free cash flow of $494M, compared to an outflow of $4.27B last year. That turnaround is somewhat unexpected since even Boeing’s management had expected the company to generate cash only in 2022. The reason: 737 MAX deliveries. China is expected to join the bandwagon and resume the MAX orders as early as Q1 2022.

Enter Qatar Airways, whose relationship with Airbus has been fraught with disputes. Qatar grounded nearly half of its 53-plane A350 fleet and complained to Airbus about the degradation of exterior fuselage surfaces. In fact, Qatar took Airbus to court in London and stopped accepting further deliveries until the problem was solved.

That was the proverbial straw that broke the camel’s back. Airbus took umbrage and unilaterally canceled its 50-plane contract with Qatar. Boeing entered the fray and walked away with the order meant for Airbus. On Monday, Qatar Airways CEO Akbar Al Baker signed a provisional order for 25 737 MAX 10 jets at the White House on Monday, with an option to buy another 25 planes.

That’s a serious shot in the arm for Boeing as it looks to produce 500 MAX’s this year. Qatar also became Boeing's first customer of its newest cargo plane - the 777X and placed an order for 34 777X, with an option to buy another 16. The total order value is pegged at $34B. The passenger version of the 777X is expected to enter service only in late 2023, three years after the original projection.

Led by e-commerce and the demand for ever-faster transportation of everything from raw material to packages, the cargo business is zooming up. 2021 marked a record year for Boeing in the sale of fuel-efficient cargo planes. For instance, the cargo version of the 777X is expected to fly almost the same payload as the 747-400 freighter but with 25% lower emissions.

Clearly, a lot is going on with Boeing. Order wins as archrival Airbus yields ground. Yet, debilitating production issues with the 787 Dreamliner. There are penalties for delayed deliveries on one hand, and there’s a growing cargo business on the other. Calhoun sees 2021 as a “key rebuilding year” for Boeing, What the shareholders think about it is anybody’s guess!

Market Reaction
BA ended at $208.34, up 4.05%.

Company Snapshot 📈

BA $208.34 +8.10 (4.05%)

Analyst Ratings (26 Analysts) BUY 69% HOLD 19% SELL 12%

Newsworthy 📰

Giant: Alphabet reports big fourth-quarter beat; stock pops in after-hours trade (GOOGL +9.16%)
Disappointing: PayPal gives downbeat earnings forecast; shares plunge after-hours (PYPL -17.92%)
Brighter: AMD charts stronger 2022 as data-center revenue booms; shares surge after-hours (AMD +10.46%)

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Emerson Electric Co. Earnings (EMR)
Johnson Controls International Plc Earnings (JCI)
Mitsubishi UFJ Financial Group Earnings (MUFG)
Mizuho Financial Group Inc. Earnings (MFG)
New York Times Co. Earnings (NYT)
Sony Group Corporation Earnings (SONY)
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Today's Market Terminology: Leverage Ratios

Leverage Ratio measures the relative value of stockholders, capitalization and credit obligations and that of the firm's ability to pay financing charges

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