Boeing and Airbus:
The Financials Jan/Feb 2024

In 2023 Boeing again reported a net loss, though a lower loss than in the previous year, while Airbus was again profitable, albeit slightly down on the previous year. Over the past five years (2019-23) Boeing has accumulated a net loss of $24.1bn while Airbus has reported a total net profit of $9.6bn.

The stockmarkets’ verdict on the two OEMs is indicated by the graph. Up to the end of 2020, including the period when the MAX crisis emerged and the whole market plummeted when the implications of the pandemic became clear, the share prices of the two OEMs more or less tracked each other, then they diverged, with Airbus strongly outperforming Boeing. Currently, the equity market value of Boeing is about $123bn while Airbus is capitalised at the equivalent of $126bn; back in 2017 Boeing was valued at $175bn almost two and half times Airbus’s $73bn.

Having emerged from the MAX crisis, Boeing looked as is it was restoring stability to its finances before the Alaska Airlines doorplug accident, which management refers to as an “escape”. Since then Boeing has been bombarded with expert and not so expert advice on where the US’s best known manufacturing company has gone wrong. Its financials are again uncertain.

Boeing’s strategy is now to “go slower”, reviewing all its processes and supply chains for safety quality. Management at the 2023 results presentation in January emphasised time and again that they were “focused on safety and quality”. The MAX production lines are being slowed, paused, with output targeted at 38 per month this year — as against the recent target of 52 per month. This is in order to make additional inspections both within the corporation and at its suppliers. In a complete reversal of its outsourcing policy Boeing is now proposing to buy its most important supplier, Spirit AeroSystems.

Most critically, the FAA is intensifying its scrutiny, giving Boeing three months to produce a plan for eliminating quality problems and setting new safety standards. The FAA administrator was unequivocal: “Making foundational change will require a sustained effort from Boeing’s leadership, and we are going to hold them accountable every step of the way.”

Even before the latest crisis, the concept of a grand strategy seems to have been abandoned. Towards the end of last year Boeing’s corporate strategy unit was dissolved, with strategy teams being devolved to the three business units. The concern is that this new structure makes it even more unlikely the company will be able to focus on new designs, such as the long-discussed new mid-sized jet. As engineering types keep pointing out, Boeing hasn’t launched a clean-sheet commercial airliner since the 787 in 2004, and the 737 MAX is the latest iteration of an aircraft type conceived in 1964.

Understandably, Boeing no longer provides financial guidance. Its key target had been to reach $100bn in revenues by 2025/26, which would have returned it to the record sum reached back in 2018. It still officially has the $100bn target but no commitment to a specific year.

At Airbus there is no schadenfreude. CEO Guillaume Faury remarked at Airbus’s results presentation in February that Boeing’s problems were a “humbling reminder” of the complexities of aircraft production and the risks inherent in supply chains. Airbus has had its own production problems, notably over the last year with the recall of GTF engines fitted to A320 NEOs, though in this case it is P&W that is bearing the direct $6bn of costs.

Airbus is giving financial guidance. Based on 800 commercial aircraft deliveries in 2024, up from 735 in 2023, it expects adjusted EBIT of €6.5-7bn, compared to €5.8bn in 2023.

To be fair, Boeing’s CEO David Calhoun has received some praise and support from industry figures for his handling of the latest crisis, and there were signs of improvement in the 2023 results but, unfortunately, policies instigated by his predecessor CEOs, James McNerney and Dennis Muilenburg especially, have undermined the corporation.

They succumbed to the obsession with quarterly results and share price momentum, resulting in unsustainable amounts of cash being returned to shareholders. This phenomenon was prevalent in many industrial sectors in the 2010s, and to a certain extent was also followed by Airbus, but the impact on Boeing was especially harsh, with too little capital being allocated for investment in new products or to ensure production quality or simply to bolster reserves in case something unexpected happened.

The financial tables and the graphs on these pages trace the financial fortunes of the two OEMs and provide some interesting insights into their current positions.

In terms of total revenues, which are mostly driven by deliveries, Boeing had been by some margin the bigger company until 2018. But over the next two years its revenues collapsed, and the two OEMs converged in terms of dollar turnover. However, there was a recovery in 2023: an annual increase of 17% to $77.8bn for Boeing and 14% to $70.6bn for Airbus.

Boeing had historically been a more profitable company than Airbus, with a net result peaking at $10.5bn in 2018, a margin of 10.4%, more than twice that of its European rival. The two manufacturers were equally unsuccessful in 2019, Boeing losing $0.6bn, because of the MAX grounding, and Airbus, $1.5bn. because of production difficulties with the A321. 2020 was calamitous for Boeing — a net loss of $11.9bn while Airbus was just moderately bad — a loss of $1.9bn. Boeing continued to lose money throughout 2021-23, reporting a net loss of $2.2bn for last year, a margin of -2.8% on revenue. Airbus pushed back into profitability in this period and reported a net profit of $3.9bn in 2023, a 5.5% margin.

Historically, Boeing’s Commercial division has been firmly supported by the Defense and Global Services divisions, But, for the past two years, Defense has been loss-making, which the company blames on the 15% of its business that is tied into fixed-price government development programmes. Airbus is predominantly a civil aircraft manufacturer, but its Defence and Helicopter divisions have contributed to overall profits for the past two years

A major difference between the two OEMs used to be Boeing’s superior ability to generate cash. Operating Cashflow — ie, profits plus depreciation and amortisation, adjustments for deposits and PDPs (these are paid to the manufacturer usually in three or four tranches, based on the list price not the negotiated discounted price, before the airline takes delivery of the aircraft which is when the manufacturer records the revenue), changes in inventories, creditor/debtor balance, etc — was huge at Boeing: $15.3bn in 2018, in contrast to just $2.7bn at Airbus. Then everything went wrong — for the period 2019-2021 Boeing’s operating outflow totalled $24.2bn, while Airbus managed to generate positive cash of $1.4bn during this period. Boeing has managed to return to positive Operating Cashflow over the past two years, generating $9.5bn while Airbus has produced $13.5bn

Subtracting Capex — which includes new and replacement manufacturing equipment, R&D, investments in or divestment from other companies — from Operating Cashflow gets us to Free Cashflow, which again was historically much stronger at Boeing than Airbus. In 2018, for instance, Boeing generated $10.5bn, dwarfing Airbus’s $2.7bn. (These calculations of Free Cashflow are taken directly from the published accounts; the OEMs may have different definitions.)

In startling contrast, during 2019-2021 Boeing’s Free Cashflow went negative to the tune of $27.2bn. Airbus was positive, $2.6bn, on this measure. The 2022 and 2023 Boeing financials indicate that the Free Cash drain has ended and indeed turned positive — $6.7bn in total, partly caused by Capex running at about half prepandemic rates. For the same period Airbus’s Free Cashflow was $7.1bn

However, the reality for Boeing is a large part of future cashflow will, in effect, have be used to pay down debt (as opposed to Capex, adding to reserves or dividends). Coming into the crises — first the MAX grounding, then Covid-19 — Boeing found itself with inadequate liquidity, which led to a surge in borrowing to cover liabilities and contingencies: during 2019-21 Boeing increased its net debt by about $43.6bn, Airbus by a much more modest $5.2bn. The OEMs did not take industry-specific state loans, but they have benefited from implicit state support. For instance, Boeing’s $25bn bond placement in 2020, was issued against the background of the Federal Reserve’s $2tr commitment to buy up distressed corporate bonds.

In 2022 and 2023 the OEMs have been paying their debt down — Boeing by $6.8bn, Airbus by $1.3bn. But Boeing’s balance sheet remains weak; its debt (long and short term) stood at $52.3bn as at the end of 2023, meaning that its balance sheet showed negative net equity of $17.2bn. Long term debt totalled $25.4bn at Airbus at the end of 2023; importantly, it has positive net equity of $19.1bn.

Debt was easily manageable in the era of ultra-low interest rates, but Boeing is now susceptible to a credit rating downgrade which will make it harder to refinance. And over the next three years $17.7bn of principal repayments are due. Both OEMs currently have investment grade ratings: Fitch rates Boeing’s long-term debt at BBB- and Airbus’s at BBB+.

Liquidity looks reasonable — as at the end of 2023 Boeing held $16.0bn in cash and near-cash while Airbus had $13.7bn. But the uncertainty surrounding production rates at Boeing plus legal threats (the DoJ is apparently examining whether the doorplug escape negates a $2.5bn deferred-prosecution agreement related to the two MAX crashes).

Boeing has not paid dividends since 2020 and there is little prospect of any in the foreseeable future. Airbus, on the other hand, has restored dividend payments, totalling $1.5bn for 2023 and has proposed a further special dividend of $1bn to be paid in 2024.

It is worth recalling what happened to all that cash generated during the good times, 2014-18. During this period Boeing generated $42.7bn in Free Cashflow but then returned $52.8bn to shareholders in dividends and, especially, through share re-purchases — in other words it paid out more to shareholders than it was generating internally; it was in effect borrowing in order to fund its generosity to shareholders (and to senior management whose bonuses were related to the soaring share price). Airbus followed the same policy, albeit on a much smaller scale — generating a total of $3.9bn and paying out $6.8bn.

Such a financial strategy was dubious during the good times. It proved to be calamitous when things went wrong, which the certainly did with the MAX grounding, then Covid-19 and now the doorplug escape. Boeing’s problems have been attributed to a prioritisation of profits over technological innovation. However, there should be no conflict between these two aims; the real problem was the obsession with short-term maximisation of shareholder value. Maximising shareholder value should not be a strategy in itself; it should be the product of a successful industrial strategy, which Boeing is trying to find again.