They are legally obliged to inform shareholders truthfully. That they are using optimal phrasing and try to hide it in their filings doesn't mean that information is not true. How deep is the hole they in are according to you?
777x write down was not caused by the technical problems you mentioned, but mainly due to the lowering of the accounting block of deffered development costs and the new required certification efforts. From an share value perspective it was done quite smoothly as Wallstreet expected bad results and Boeing just cleaned up shop by putting all known accounting problems in 2020 by blaming the pandemic and regulatory issues. Thanks to the write down the 777x might even bring in profits in the future years as it needs to pay less deferred development/production costs compared to the 787. Off course this depends a lot on demand recovery.
NL stands for Netherlands and not Newfoundland, so had no idea who Brad Gushue was.
I had a 50/50 shot on the NL thing. Given your name....I went with Gushue.
If only the C-suite boys of all publicly traded firms followed those rules...maybe if the punishments actually meant something.
I have two friends I am in regular contact with; one is a former Boeing engineer who is regularly kept in the loop on the shop talk by the guys still there and another is a structures engineer who worked for both BA and AB as a sub contractor. I kinda get the dirt under the nails stuff.
On the 777X the ramp talk is that there is also a high alpha issue BA is dealing with. To your point though (and this goes to the veracity of what the c-suite guys say) IIRC the accounting block dropped from 400 to 350, in the most recent filing, correct? Therefore they still expect to sell 350 units and amortise the sunk costs over those units. Not sure how a drop of 50 aircraft would mean a loss of $6.5 billion. That would imply a $130 million cost allocated on R&D to each aircraft.
The other shoe to drop, is that this is only a portion of the money spent on the 777X. There are other costs that will be allocated to the accounting block - some rumblings are that the $6.5 billion is HALF of what was spent (or being spent). My guy is a plane guy, not a numbers guy - so he doesn't get the scoop from the finance people...but some shop guys talk to office guys - so there is some trickle down of info.
From a program standpoint - just because you've acknowledged an expense for a particular period, does not mean that all of a sudden a program is profitable. That $6.5 billion has been spent. Money has been borrowed to fund it. Interest will also be paid for as long as it needs to be paid off. 'From now on' is a horrible position - it's kind of like some who say 'the Max will now be the safest plane in the world'...you can't just undo the crashes and deaths.
For Wall Street and for the profitability of a program are two different things.
How bad is it at BA, you ask?
It's an ongoing situation, but a very conservative estimate is that;
1) They're down $6.5 billion on the 777X
2) The're down $20 billion on the Max
3) They're down $18 billion on the 787
All 3 of those numbers are going up. The 777X for what I mentioned. The Max number was a Mar 2020 estimate by Boeing and the 787 has a huge issue with the fuselage joints. The $18 billion is the previous bill for the sunk costs, not this stuff. I expect them to take a forward loss on the program.
Borrowing costs alone are at $2.6 billion a year. How many aircraft do you have to sell to cover $2.6 billion?
Just to put it all into SWA context:
If Boeing TODAY were to be able to build and sell all 280 Max's that SWA has/had on order, and get paid for each one, they would get some $10.3 billion in revenue. If we use the 2018 margin number of 13% (which includes the margins for both wide and narrow bodies) they would make $1.346 billion on the entire order.
That would pay HALF of the interest expense for the year. Half.
(A side note on the margin: the 2018 margin is when BA sold over 800 aircraft. Fixed costs were allocated over a large number of units sold. There are some costs BA can cut, others they cannot - whether they sell 1 or 800 planes. You still gotta keep the lights on, the place heated and a host of other expenses. Margins are not going to be as good, as they were in 2018)
Q1/21 is coming up soon. I guess we'll see...
I agree that the debt is going to hurt them quite a lot, but I believe they still have the opportunity to turn there destiny around. Look at GE, they unloaded massive amount of debt the last couple of years. They started with over $300 billion in 2015 and now are at $80 billion. The $60 billion at Boeing is not unmanageable.
$6.5 was an accumulation of extra certification costs, delivery delay penalties and the accounting block drop. The exact size of each post was not communicated. So, your guess is as good as any.
Wallstreet has an short memory + attention span and is not concerned with program profitability. There concern is the yearly or profitability of the company, as they do not invest in programs but in companies. I completely agree that the program might never make dime of profit, but it can generate profit on an quarterly/yearly basis thanks to the write off. This was also communicated by Boeing with the forward loss messages. Same is the case for the 787, the program might make a loss but it showed some nice profits on paper during 2014-2019.
The execution of the NMA will make or break the company. They need perfect execution on the development side. On the sales side it is actually quite good if they can create an 50-50 balance against the A321 and future A322. The numbers in that segment are high enough to easily support the business case for 50% market share. NMA also decides the future of the NSA. If the NMA fails like previous programs, then the NSA is probably doomed and as such Boeing Commercial Aviation...
Interesting comparison. How did GE do this? By spinning off pieces of itself, like it's Biopharma division to Danaher for $21 billion. Acquisitions were generally how GE got itself into their mess in the first place, so they had stuff to sell to reduce debt (hello there Baker Hughes).
You think Boeing is going to spin off Defence or Services to raise capital? Some have mentioned that is a possibility. Selling the stock they bought back with that $43 billion might also be an option, but it would drive down share price, a big no-no. Besides, Boeing needs the shares to fund the pension/medical liabilities, like it did in Q4 with $3 billion.
Accrued retiree health care 2020:$4,137 2019: $4,540
Accrued pension plan liability, net 2020:$14,408 2019: $16,276
That's $18.5 billion that they seem to want to pay off through equity. On top of the $62 billion in long term debt.
Wall Street is kind of crazy right now, due to the glut of cash. Financials don't seem to mean a damn thing.
But the ways GE and BA got themselves into trouble are two fundamentally different things.
IMO Boeing got itself into this mess two ways;
One, they cheaped out on product and tried to milk as much profit as possible.
Two, they used the proceeds not to fund future development, but to enrich shareholders.
They essentially killed the golden goose.
But here is a fun exercise;
Let's say that Boeing was able today, to produce and deliver every aircraft it has in it's commercial backlog, without incurring any additional debts, without giving any other discounts, getting full bang for their buck - what would we have? We'll even use their best year ever of 2018 as a benchmark for margins....13%.
Right off their report: Commercial Airplanes $281,588
They would make almost $37 billion dollars, at the rosiest outlook. They'd only be some $25 billion short of paying off their long term debt.
But Boeing is far from finished with it's borrowing, isn't it? They just took on almost $14 more billion to pay off their revolver, which now gives them space on the credit card.
Let's look at your projection for the NMA; On the sales side it is actually quite good if they can create an 50-50 balance against the A321 and future A322. The numbers in that segment are high enough to easily support the business case for 50% market share
Really? Let's not talk about any hypothetical A322, but let's look at the reality of the current market.
The 321Neo variant has some 3,500 orders. Are you saying there is the market for that many NMA's? That's what BA would have to sell to have 50/50 there. How many 757's & 767's did Boeing sell combined? 1.050 & 1,280. That includes tankers & freighters. All of a sudden, the market for that niche is 7,000 units and Boeing would have to win EVERY SINGLE BID of that, to get to 50/50.
BTW - where is Boeing going to get the $15-20 billion to launch this thing? Put it on the credit card, too? I guess if you're already paying some $2.6 billion in annual interest payments, another billion or so isn't going to make much difference, is it?
(BTW, on the 777X issue, here's the official corporate verbiage BA put out:As discussed above, Commercial Airplanes now expects first delivery of the 777X to occur in late 2023 and
has recorded a $6.5 billion reach-forward loss on the 777X program. Among the factors contributing to the revised
first delivery schedule and reach-forward loss are an updated assessment of certification requirements based on
ongoing communication with civil aviation authorities, an updated assessment of market demand based on
continued dialogue with customers, resulting adjustments to production rates and the program accounting quantity,
increased change incorporation costs, and associated customer and supply chain impacts. The production rate
expectation for the combined 777/777X program remains at 2 per month in 2021.
Now YOU guess what that actually means and how big an effect of reducing the block by 50 really has....)
The problem with saying that once a loss is taken, it's gone and forgotten, is that it isn't. It's right there, sitting on your balance sheet and income statement, staring at you. It's name has changed, but it's there. It's now LONG TERM DEBT & INTEREST EXPENSE.
And because you've taken a loss and had to borrow money to cover it, it's costing you more money. it will continue to cost you more money because all you've done is kicked the can down the road. But in Boeing's case, they aren't borrowing this money to acquire something they can later sell or profit from, they aren't borrowing this money to fund future developments - they've had to borrow this money because they were stupid and greedy.