Boeing Co. (BA) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial statements are unaudited. Deloitte performed an interim review and reported that it was not aware of material modifications needed for GAAP conformity; this was not an audit opinion on the interim statements.
Business context and results
Boeing operates Commercial Airplanes (BCA), Defense, Space & Security (BDS), and Global Services (BGS). Nine-month revenue rose primarily on higher commercial deliveries, commercial-services recovery, and lower charges on certain BDS development programs. The company remained loss-making in both the quarter and year to date.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $18.1B | $16.0B | $55.8B | $46.6B |
| GAAP operating loss | $0.8B | $2.8B | $1.1B | $3.2B |
| GAAP operating margin | (4.5)% | (17.5)% | (1.9)% | (6.8)% |
| Net loss attributable to Boeing shareholders | $1.6B | $3.3B | $2.2B | $4.3B |
| Diluted loss per share | $2.70 | $5.49 | $3.64 | $7.24 |
Cash flow and liquidity: Operating cash flow was $2.6B for the first nine months, versus $55M in 2022, helped by a $3.0B increase in advances and progress billings. Investing activities used $5.2B, including net investment purchases; financing activities used $5.1B, mainly for debt repayments. Cash and cash equivalents were $6.8B, and short-term investments were $6.6B at September 30. Boeing reported $10.0B of unused revolving credit capacity and compliance with debt covenants.
Debt and balance sheet: Total debt was $52.3B at September 30, down from $57.0B at year-end 2022; $4.9B was classified as short-term. Total liabilities were $151.0B, exceeding total assets of $134.3B, leaving a shareholders’ deficit of $16.7B. Inventories were $79.0B.
Backlog: Total backlog increased to $469.2B from $404.4B at December 31, 2022. Boeing estimated 21% would convert to revenue through 2024 and 71% through 2027, while noting uncertainty around delivery timing and aircraft entry into service.
Segments and changes versus prior periods
- BCA: Nine-month revenue increased to $23.4B from $16.8B; operating loss narrowed to $1.7B from $1.7B. Higher 737 and 787 deliveries were partly offset by increased R&D and abnormal production costs. Q3 deliveries were 105 commercial aircraft versus 112 a year earlier; 737 deliveries were lower, while 787 deliveries were higher.
- BDS: Nine-month revenue increased to $18.2B from $17.0B, and operating loss narrowed to $1.7B from $3.7B. Improvement chiefly reflected lower cumulative catch-up charges on development programs compared with 2022; the segment still recorded a $924M Q3 operating loss.
- BGS: Nine-month revenue rose to $14.3B from $13.0B, and operating earnings increased to $2.5B from $2.1B, led by commercial-services recovery. Q3 operating earnings were $784M versus $733M.
- Consolidated comparison: Nine-month operating loss improved by $2.1B year over year. Q3 operating loss improved by $2.0B. Non-GAAP core operating loss was $1.1B for Q3 and $1.9B for the first nine months; these measures exclude specified pension-related adjustments and are not GAAP measures.
Outlook, risks, contingencies, and unusual items
- Production and quality: Nonconforming 737 fuselage components and aft pressure-dome holes prompted inspections and rework, disrupting deliveries and the planned rate increase. Boeing expected to move from 31 to 38 737s per month by year-end 2023 and deliver most 737 inventory, including 85 aircraft for China, by the end of 2024, subject to production and China-delivery uncertainty. The filing states the identified issues did not present an immediate or in-service safety-of-flight issue.
- 787 and 777X: Boeing expected to transition 787 production from four to five aircraft monthly; it estimated total 787 abnormal costs at $3.0B and expected remaining inspection/rework costs by the end of 2024. It expected the 777X production system to resume all phases in Q4 2023 and first 777X-9 delivery in 2025. Certification timing and further costs remain uncertain.
- Fixed-price development programs: Boeing recorded a $482M Q3 increase in the VC-25B (Air Force One) reach-forward loss, and a $71M Q3 increase for MQ-25. It also recorded a $315M BDS charge related to a customer agreement, including customer considerations and higher costs to enhance a satellite constellation and meet lifecycle commitments. Further losses remain possible on VC-25B, KC-46A, MQ-25, T-7A, Commercial Crew, and other programs.
- Other notable costs and exposures: Nine-month abnormal production costs were $1.38B, including $937M for 787 and $442M for 777X. The 737 MAX customer-concessions liability was $1.45B. Environmental remediation liabilities were $855M; reasonably possible remediation costs could exceed recorded liabilities by up to $1.02B. Boeing cited continuing supply-chain disruption, labor instability, inflation, and potential U.S. government funding interruptions.
- Legal and tax matters: Boeing could not reasonably estimate potential losses, if any, from remaining 737 MAX accident litigation or the Embraer arbitration. It remained subject to Department of Justice oversight obligations under the 2021 Deferred Prosecution Agreement. The IRS was auditing 2018–2020 tax years; unrecognized federal tax benefits could decrease by up to $620M within 12 months, based on current estimates.
- Formal guidance: The filing does not provide a clear numerical full-year revenue, earnings, or cash-flow forecast. Management stated that capital expenditures in 2023 were expected to exceed 2022 and that it expected to fund requirements through cash, investments, operating cash flow, and capital-market access.
Important facts for investors to verify
- Whether 737 inspection/rework, production-rate plans, China deliveries, and inventory-clearance expectations are achieved.
- Whether 787 abnormal costs end as expected and the 777X restart and certification schedule remain on track.
- Whether BDS fixed-price programs generate further reach-forward losses or cash requirements.
- Whether operating cash generation improves without relying primarily on customer advances, and whether debt continues to decline.
- Potential changes in legal, environmental, tax, customer-concession, and supplier-related exposures.