Has anyone heard anything definitive that Boeing concluded that if they deliver their current backlog of airplanes that their net profit margin would be about -10% and they are actually looking for airplane cancellations and using delivery delays as a motivation to airlines?
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Yup. Getting orders and making announcements is easy if you sell at a deep discount...knowing you won't ever be delivering them... Delivering airplanes, making a profit and keeping your customers happy is hard...but not necessary if you know you are going out of business and just need that short-term influx of cash before you depart with your severance package...
Yes. Ja--ing up stock price and executive wealth is what Boeing has been about these last two decades. No one watches cancelations closely, only new order announcements. Every airplane Boeing delivers these days costs them money as the past two years of quarterly reports have shown resulting in negative profits.
This actually seems plausible and may explain what we have been seeing. They know it's over and are working the executive severance packages with bankruptcy in mind.
No inflation clause in previous Boeing contracts. Inflation wasn't an issue for over 30 years. New contracts may have inflation clause...if buyers accept them...which seems unlikely. So all airplane manufacturers now have this issue to some extent and will see reduced net profit margin for foreseeable future...some manufacturers being more affected by this than others. Boeing has had to significantly reduce their 737Max prices just to try to retain market share, so they are likely impacted the most.
I have never read a Boeing aircraft purchase contract, but I wonder if it typically includes rising cost of materials. We are seeing massive inflation in all sectors of the economy right now (May 2022). Would a purchase contract signed, say, two or five years ago have a cost increase built in should materials or wage costs increase? Anyone know?
You do raise a good point. What little backlog Boeing has relative to Airbus and COMAC is at contract prices that are significantly lower than it cost them them to manufacture. Every airplane they deliver reduces their cash working capital. And they are already deep in debt facing rising interest rates. Not where you want to be with COMAC emerging from its shell with an unlimited budget.
The cost of quality is a key factor for Boeing. If quality in manufacturing is poor then re-work costs increase. Boeing used to have a quality labor pool, but they sought cheaper and lesser qualified employees and now have them, but at a much higher re-work cost. The profit margin on an airplane is slim, and any re-work just eats that up. I am all for Boeing going outside of Seattle to do their business, and I am glad they did, but they didn't make sure the quality stayed as high as it was in Seattle.
Boeing has no ethics so anything is possible. Boeing max only has customers because some Airlines can’t wait three years for an A321. After airbus ramps of production to over 65 a month They will be able to meet the demand which is going to destroy the 737 max business. The fact Boeing hasn’t annouced a 737 max replacement is a nail in the coffin for Boeing. The 737 max cannot compete with the A321 and everybody knows it.
Last report was -9% for net profit.
I wouldn't be in the least surprised. We know Boeing has essentially been giving away their 737Max airplanes in recent years just to save face and pretend all is back to normal. But they didn't do that for Ryan Air which makes me think it is costing them more to manufacture than they previously expected. Maybe way more given component shortages and inflation.