Boeing Co. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports fourth-quarter results. Boeing operates Commercial Airplanes (BCA), Defense, Space & Security (BDS), Global Services (BGS), and Boeing Capital (BCC). The year was materially affected by COVID-19 and the continuing 737 MAX grounding and recovery.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $58.2 billion | $76.6 billion |
| Operating loss | $12.8 billion | $2.0 billion |
| Operating margin | (22.0)% | (2.6)% |
| Net loss attributable to Boeing shareholders | $11.9 billion | $636 million |
| Diluted loss per share | $20.88 | $1.12 |
| Operating cash flow | $(18.4) billion | $(2.4) billion |
| Cash and short-term investments at year-end | $25.6 billion | $10.0 billion |
| Total debt at year-end | $63.6 billion | $27.3 billion |
| Total backlog at year-end | $363.4 billion | $463.4 billion |
Revenue fell about 24%, principally from reduced commercial aircraft deliveries and weaker commercial services. Cost of sales was 109.8% of revenue, versus 94.2% in 2019. Boeing reported a $14.2 billion non-GAAP core operating loss; this measure excludes specified pension and postretirement cost adjustments.
Year-end total assets were $152.1 billion and total liabilities $170.2 billion, leaving a shareholders’ deficit of $18.3 billion. Inventory rose to $81.7 billion from $76.6 billion, including approximately 425 undelivered 737 MAX aircraft and 80 undelivered 787s. Available unused revolving credit capacity was $9.5 billion. Boeing suspended dividends and terminated its share-repurchase authorization in March 2020.
Segments and material changes
- BCA: Revenue was $16.2 billion, down from $32.3 billion; operating loss widened to $13.8 billion from $6.7 billion. Results included a $6.5 billion 777X reach-forward loss, abnormal 737 MAX production costs, lower deliveries, 787 production issues and rework, and severance costs.
- BDS: Revenue was $26.3 billion, broadly level with 2019, but operating earnings fell to $1.5 billion from $2.6 billion. Charges included $1.32 billion on KC-46A and $168 million on VC-25B.
- BGS: Revenue declined to $15.5 billion from $18.5 billion and operating earnings to $450 million from $2.7 billion. Pandemic-related charges included inventory write-downs, distribution-rights impairments, expected credit losses, contract and facility impairments, and severance.
- BCC: Revenue was $261 million and operating earnings $63 million. Its financing portfolio was $2.0 billion and was concentrated in certain aircraft and customers, including some assessed as below investment grade.
Outlook, risks, contingencies and unusual items
- Management expected negative operating cash flow in future quarters until commercial deliveries recover. It estimated roughly three years for global travel to return to 2019 levels, with additional time for the industry to regain long-term trend growth. Management stated it believed Boeing could fund operations for the foreseeable future, based on its assumptions and access to liquidity.
- Boeing expected the first 777X delivery in late 2023. It planned to increase 737 production gradually to 31 aircraft per month by early 2022 and expected about half of its 737 MAX inventory to be delivered by the end of 2021, subject to regulatory approvals and demand. It expected most inventory 787 deliveries by the end of 2021, while reducing 787 production to five per month in 2021.
- The 737 MAX was cleared by the FAA to return to service in the U.S. in late 2020, but approvals in some jurisdictions remained outstanding at year-end. Boeing’s $5.5 billion year-end liability for customer concessions and other considerations remained subject to estimates and negotiations. The filing says additional losses related to MAX litigation and investigations could not be reasonably estimated.
- A January 2021 Department of Justice Deferred Prosecution Agreement, disclosed in the filing after year-end, requires payments totaling $2.51 billion and enhanced compliance measures. Boeing recorded a $744 million charge in fourth-quarter 2020 related to the agreement; a portion of the total payments had already been reserved for customer considerations.
- Other notable exposures include the $1.32 billion KC-46A reach-forward loss, the 777X loss and potential further program losses, 787 inspection and rework risks, and a $3.1 billion deferred-tax valuation allowance at year-end following a substantial fourth-quarter increase. Environmental remediation liabilities were $565 million; the high end of the reasonably possible cost range exceeded the recorded liability by $1.1 billion.
- Further risks include prolonged weak airline demand, customer or supplier financial distress, order cancellations, regulatory or production delays, fixed-price contract overruns, defense-budget changes, litigation, tariffs, and Boeing’s higher debt and credit-rating downgrades. Management reported that the company was in compliance with debt covenants at year-end.
Most important facts for investors to verify
- Whether 737 MAX approvals, deliveries, production ramp-up, customer compensation, and remaining inventory progress in line with Boeing’s assumptions.
- Whether the 777X certification and late-2023 delivery schedule hold, and whether further reach-forward losses arise.
- Whether 787 inspection rework is resolved and inventory is delivered as planned, without material margin or cash-flow deterioration.
- Whether commercial aviation demand and customer liquidity recover sufficiently to improve operating cash flow and reduce inventory.
- Debt maturities, borrowing access, credit ratings, liquidity and the ability to meet financing and contractual commitments.
- Final cash costs and compliance obligations under the DOJ agreement, and developments in other MAX-related litigation and investigations.
- Progress on the KC-46A and other fixed-price development contracts, and the realizability of deferred tax assets.