Boeing (BA) reported its first quarterly profit since 2019 early Wednesday, with production of the 737 Max set to continue rising as more orders come in. Boeing shares rose.
In a letter to Boeing employees, CEO David Calhoun said 30 airlines have returned the 737 Max to service since November, generating nearly 95,000 revenue flights, totaling more than 218,000 flight hours.
“We were also encouraged to see commercial customers making long-term investments and reinforcing confidence in the 737 Max, through more than 280 gross orders this quarter.”
Production from the 737 program will gradually increase to 31 per month in early 2022, from 16 per month now, with further gradual increases based on market demand. But abnormally slow production rates have resulted in costs, which totaled $1.08 billion in the first six months of the year.
A wave of orders, including one of United Airlines (UAL) for 200 aircraft, Boeing has outlined plans to increase 737 Max output to a whopping 42 jets per month by the fall of 2022, industry sources told Reuters in May.
The timing of the 737 Max’s production increase could be affected if Chinese regulators approve the jet’s return there. Boeing expects the remaining regulatory approvals for the 737 Max, including those from China, to take place this year.
“We’ve worked closely with them from the beginning, it’s constructive technical issues that are being resolved. In fact, I think they’re all behind us for the most part,” Calhoun said of Chinese regulators during the company’s investor call.
China has 100 737 Max jets that remain on the ground, although demand for travel is expected to pick up around the Beijing Winter Olympics, which start in February.
Calhoun said he expects the 737 Max backlog to continue to widen, even with stronger deliveries in the second half of the year.
Boeing earnings report
The Dow Jones giant reported earnings of 40 cents a share, compared to a loss of $4.79 a share in the same quarter a year ago. Analysts polled by FactSet saw loss per share fall to 83 cents. Revenue rose 44% to $17 billion and also exceeded expectations.
Commercial revenues were up 268% to $6.015 billion, roughly in line with opinion, while shipments rose to 79 from 20 a year ago. The commercial order book grew to more than 4,155 aircraft worth $285 billion, up from more than 4,000 aircraft worth $283 billion in the first quarter.
Defense revenues rose 4% to $6.88 billion, better than analysts’ expectations at $6.76 billion, thanks to higher volume KC-46A Tanker and P-8A Poseidon. Global services revenue grew 17% to $4.07 billion.
While the problems with the 737 Max are disappearing, Boeing is now struggling with problems with the 787 Dreamliner. The company said that while it inspected and reworked issues with the widebody aircraft, production rates would drop below the current rate of five per month before gradually ramping up production.
Less than half of the stock will be delivered this year. That’s less than a previous estimate of nearly all of his completed aircraft.
Meanwhile, Boeing is still seeing the first 777X delivery in late 2023.
But the widebody market is facing headwinds as the highly contagious delta strain of Covid-19 could slow the recovery of international travel.
The outlook from jet engine manufacturers is also mixed. On Tuesday, General Electric (TO GIVE) said it expected the recovery of the global aviation market to accelerate in the second half of the year. But CEO Raytheon Technologies (RTXGreg Hayes said he still doesn’t expect a return to pre-pandemic levels until 2024, mainly due to depressed international travel.
Shares rose 4.9% to 233.08 0 in the stock market today. Boeing shares are back above the 200-day mark, but remain below the 50-day mark, according to MarketSmith Chart Analysis.
Top supplier Spirit AeroSystems (SPR) rose 2% on Wednesday and engine supplier GE rose 0.7% after reporting strong Q2 results early Tuesday.
Increased competition from rival Airbus (EADSY) also weighs on Boeing shares. The European aerospace giant has been the largest aircraft maker for the past two years and has ambitious plans to ramp up production of its A320 narrow-body jets.
“We also reiterate concerns that Airbus’ market share could last longer if Boeing does not respond with a strategic alternative,” Bank of America analysts wrote in a July 21 note. “Plans to produce 70 A320 families per month in[Q12024)mayseemambitiousonthefaceofitbutcouldleaveBoeingwith40%marketshareiftheonce-venerablegiantdoesn’trespond”
Follow Gillian Rich on Twitter for aviation news and more.
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