Boeing: the good the bad and the vast debt
Boeing has been at the centre of an ongoing litany of problems, much of them of their own making.
The good news last week was that RyanAir ordered another 75 on the 737-8-200, its bespoke 199 seater designed to maximise income while keeping crew numbers just below the next additional member that 200 seats would mandate.
The bad news is that 787 production is to be cut again, from 6 per month in mid-2021 to just 5. Not a year ago it was running out at 14. Indeed the speed it was being produced at would have seen the order books expire by late 2024 early 2025. That’s now been pushed out to almost 2030 but it’s only temporary. Eventually production will rise, but it seems unlikely it will ever get to 14 again, 10 per month is more like it come 2023-24.
Boeing’s real worries are its vast debt and the need to raise even more money. Its debt level is one of the largest in corporate history, even allowing for adjusted inflation over the years.
Boeing raised more than US$30 billion in debt in the first half of the year as Covid hit, just to ensure its operating liquidity. Its total corporate debt is estimated to be US$61 billion.
Even more of an issue is many ways is that the company is sat on a vast inventory of undelivered and in many cases unsold (due to cancellations) aircraft, totalling another $87 billion. Its expected to take up to March 2022 to clear the entire backlog, but that income wont clear the debt.
Boeing has also shot itself in the foot with the 787, with deliveries for those who do want them held up because of extensive inspections and repairs for as many as half a dozen different issues identified as flaws in the production process. So even those they can get money for are taking far longer and costing far more, eating into profit margins.
450 MAX (not that we’re supposed to call it that anymore) are having to be individually inspected and repaired before each is certified, a long and expensive process. Even the 75 aircraft RyanAir ordered are in reality costing the company money, as much of the deal is in offset payments from compensation to the airline, and RyanAir drive a hard bargain at the best of times, they pay barely more than cost + 10%, and they’re heavily motivated to push that discount higher as Europe adds 15% tariffs because of the Airbus-Boeing subsidies disputes and the tariffs Trump placed on European goods. Both sides are hoping some sanity will return with a new Biden Administration willing to resolve these issues.
Any thought that the UK would offer any better route for aircraft purchasing has now been scuppered, as it has sided with its European allies in adding the 15% tariffs. Boeing’s investment in the UK is a drop in the ocean compared to Airbus.
Part of Boeing’s solution to all of this is to sell more shares. That will raise cash and help pay down its debt. Ironically the policy of previous management, the people responsible for the MAX disaster, who were motivated by share price and bonus payments based on those figures, yet again comes home to roost. By using Boeing’s good times profits to buy back shares and return money to the investors, rather than invest and pay down the debt it had, the longer term future of the company, while not in doubt, has been financially compromised. It would have had the money to operate the NMA/797-X development, now in never land.
There’s also complete radio silence on the future of the 777-9. Nobody has said its dead, but there’s not been any enthusiastic pushing it forward either. Until the company makes it clear what its doing with the huge aircraft, something of a question mark has to hang over it.