Boeing executives projected confidence about next year, even as the airframer struggles with production, regulatory, and delivery problems with three of its marquee aircraft programs. Despite the confidence, Boeing reported another quarter of losses, although sharply narrower than the same period last year, when the 737 Max was still grounded.
Boeing’s halted deliveries of its best-selling widebody, the 787, earlier this year after regulators found unacceptable gaps in portions of the aircraft’s fuselage. The airframer took a $183 million charge on the program in the quarter and expects costs associated with the delay to reach $1 billion over the next year. CEO David Calhoun insisted there were no safety-of-flight problems with the airframe but said there was a quality concern with a supplier.
Boeing has 105 787s in its inventory and has held production at two aircraft per month while the deliveries are halted. It expects to raise that to five aircraft per month when deliveries resume. “Most of the rework is in the rear-view mirror for us,” Calhoun said. Now, the company is working with the FAA and other regulators to certify its fixes. “The irony of the whole story is that [the 787] is the most utilized widebody out there,” Calhoun said. “Demand will be quite robust in the second half of next year.”
The company delivered 62 737 Maxes in the third quarter and is working through its backlog of aircraft awaiting delivery. So far, Boeing has delivered one-third of the backlog and has re-marketed most of the aircraft cancelled during the almost-two-year grounding. Demand for the Max continues to improve, and Boeing recorded its eighth straight month of increasing orders for the type, Calhoun said.
Boeing plans to ramp production of the Max up from 19 aircraft per month to 31 aircraft per month next year. But with the remaining inventories and the newly produced aircraft, the company will have to deliver as many as 500 aircraft in 2022. “We have to get better about delivering the Max,” Calhoun said. “I’m reasonably confident that we can get through it.”
A production ramp up of that magnitude raises questions about the supply chain’s readiness. Boeing has identified the availability of labor, logistics constraints, and the rising cost of raw materials as areas of concern as it builds up its production rate. “Labor availability within our supply chain will be a key watch item next year,” Calhoun said.
A handful of countries remain to certify the Max, the biggest among them being China. Boeing is in regular contact with its Chinese airline customers and regulators in that country. The company is confident that regulatory clearance will come by the end of the year and deliveries will resume early next year, Calhoun said.
Boeing now expects to start delivering the 777X by the end of 2023, a delay that has angered several of the aircraft’s launch customers. The aircraft is already in flight tests, and the airframer is in talks with regulators on the remaining work that needs to be done on the airframe, Calhoun said. The company is holding the combined 777 and 777X production rate at two aircraft per month.
Lessons from the 20-month Max grounding have taught Boeing how to navigate regulatory concerns over the 777X program, Calhoun said. But he is confident about the delivery date at the end of 2023. “We put a lot of time into this,” he said.
Boeing will make a decision on whether to launch a 777X freighter soon. The company is leaning toward developing a freighter variant, given the demand for cargo aircraft during the pandemic. Air cargo traffic is 8 percent higher now than it was in 2019, despite the absence of belly-hold cargo capacity on international flights. Boeing has had more freighter orders — both dedicated freighters and passenger conversions — in the year to date than it has in any single full year in its history, Calhoun said. Boeing predicts the global freighter fleet will be 70 percent bigger than 2019 by 2040.
In the quarter, Boeing Commercial Airplanes delivered 84 aircraft and had orders for 70 737 Maxes, 24 freighters, and 12 787s. The company’s commercial aircraft backlog is just over 4,100 aircraft, worth $290 billion. The company expects 2022 demand to be robust as airlines replace older aircraft with newer, more fuel efficient — and more sustainable — aircraft. Single-aisle aircraft will lead the recovery, while Boeing expects widebody demand to return to prior levels in 2024.
Long-term trends are favorable for the industry. Boeing said its 10-year market outlook still will reflect the effects of the pandemic on demand, but the effects will be muted in the company’s 20-year forecast. International traffic remains at 69 percent below 2019 levels. Domestic demand is growing, despite a hiccough during the Delta variant’s spread this summer. The global active fleet is at 85 percent of 2019 levels, and airlines are flying 65 percent of their pre-pandemic capacity. This is expected to rise to 70 percent by the end of the year, Calhoun said.
The company has stood up a team to study a clean-sheet aircraft. Calhoun declined to say when or what type of aircraft the team will develop, but stressed that Boeing is actively considering a new aircraft type in the medium term.
Boeing narrowed its third-quarter loss to $132 million from $466 million a year ago, during the depths of the Max grounding. Revenues reached $15.3 billion, up from $14.1 billion last year. Its Commercial Airplanes division reported revenues of $4.5 billion, up 24 percent from last year, and a loss of $693 million, down from $1.4 billion in 2020. Defense and Space revenues were up 3 percent to $$6.6 billion, generating $436 million in earnings. Defense spending is expected to rise in the new year as governments shift resources from Covid response back to national security, Calhoun said.