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    Boeing Co (BA)

    Q4 2023 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$191.47October 1, 2023
    Final Price$260.66December 31, 2023
    Price Change$69.19
    % Change+36.14%

    What went well

    • Boeing Defense and Space (BDS) margins are expected to improve, with plans to return to high single-digit margins by the 2025-2026 time frame. The core business is solid, representing 60% of revenue and performing in the mid- to high single-digit margin range.
    • The 787 program is performing well with a big backlog. Boeing is producing at 5 aircraft per month and expects to steadily increase rates over time, indicating strong future revenue potential.
    • China has resumed taking deliveries of the 737 MAX, which positively impacts Boeing's deliveries and revenue growth.

    What went wrong

    • Delays in certification of the 737 MAX 7 and MAX 10 due to the withdrawal of the time-limited exemption could impact production rates and delivery schedules, affecting the profit profile of the MAX series. ,
    • Significant cash investments in the 777X program are impacting cash flow, with management acknowledging that the investment is "important and big," potentially presenting financial challenges. ,
    • Boeing Defense and Space (BDS) experienced worse-than-expected cash burn and negative margins in 2023, negatively impacting overall financial performance, with management stating that margins are "still not where you want it." ,

    Q&A Summary

    1. MAX 7 and MAX 10 Certification Timing
      Q: Update on MAX 7 and 10 certification timing?
      A: Certification of the MAX 7 will be delayed until an engineered solution for the engine anti-icing system is implemented, which could take about a year. Boeing is dedicating more resources to accelerate this fix. The MAX 10 certification is progressing, but the company prefers not to speculate on timing.

    2. Free Cash Flow Outlook for 2024
      Q: Will free cash flow grow in 2024?
      A: Boeing expects 2024 free cash flow to be steady or slightly higher than in 2023. Increased volumes in Commercial Airplanes and reduced drag from Defense should contribute positively, but significant investments in the 777X program and potential inventory growth may offset these gains.

    3. MAX Program Recovery and Supply Chain
      Q: Where is Boeing in recovering the MAX program?
      A: Boeing is pleased with progress on the MAX recovery, having successfully transitioned to a production rate of 38 aircraft per month. The supply chain is stabilizing, and deliveries to China have commenced, reflecting improved demand.

    4. Defense Business Margin Outlook
      Q: How will defense margins improve?
      A: Boeing anticipates defense margins to return to the mid- to high single-digit range over time as they address challenges in fighters and satellites, which comprise 25% of the portfolio. Including contributions from Global Services, external defense margins aim to reach double digits.

    5. Cost of Shadow Factories
      Q: What's the impact of shadow factories on costs?
      A: Shadow factories significantly increase costs, requiring more labor hours than the initial production. Boeing plans to wind down these facilities over the next year, which should enhance Commercial Airplanes' profitability.

    6. 787 Program Status
      Q: How is the 787 program performing?
      A: The 787 program is performing well, maintaining a production rate of 5 aircraft per month. Boeing expects to steadily increase this rate and reduce inventory, supported by a robust backlog.

    7. China Deliveries Resuming
      Q: Are MAX deliveries to China resuming?
      A: Yes, deliveries of the MAX to China have resumed, with aircraft being delivered one at a time. This marks a positive development in re-engaging with Chinese customers.

    8. Supply Chain Constraints and Inventory
      Q: Will inventory build due to supply chain running ahead?
      A: Boeing anticipates an inventory build-up in the coming quarters as the supply chain continues at the master schedule while deliveries are paused. This is accounted for in cash flow expectations.

    9. MAX Production Rates and Deliveries
      Q: What's the outlook for MAX production and deliveries?
      A: Boeing is producing at a rate of 38 MAX aircraft per month and plans to maintain this rate. However, specifics on deliveries depend on certification timelines for the MAX 7 and 10, and the company is not providing detailed projections at this time.

    10. Operational Flexibility with Variants
      Q: Can Boeing adjust production mix if certifications delay?
      A: Boeing is confident it can manage product mix adjustments among MAX variants if certifications are delayed, without significant disruptions to production. They expect to have sufficient lead time to plan and coordinate with customers.

    11. Engine Anti-Icing System Fix
      Q: Can the anti-icing system fix be accelerated?
      A: Yes, Boeing is allocating additional resources to expedite the engineered fix for the engine anti-icing system, aiming to reduce the estimated time of about nine months.

    12. Quality Control Issues
      Q: How did quality issues occur despite scrutiny?
      A: Quality escapes are unacceptable, and despite significant scrutiny, the recent incident has prompted Boeing to intensify efforts to enhance quality systems and prevent future occurrences. Immediate action is being taken to learn and improve.

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