Boeing Co. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. The interim financial statements were reviewed by Deloitte, not audited.
Business context and financial performance
Boeing’s results reflected continuing 787 production and delivery problems, the lingering effects of the 737 MAX grounding, COVID-19 impacts, and supply-chain constraints and inflation. Results are also affected by long-term contract estimates and aircraft program accounting.
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $16.681 billion | $16.998 billion | $30.672 billion | $32.215 billion |
| GAAP operating earnings (loss) | $774 million | $1.023 billion | ($395 million) | $940 million |
| GAAP operating margin | 4.6% | 6.0% | (1.3%) | 2.9% |
| Net earnings (loss) attributable to Boeing shareholders | $193 million | $587 million | ($1.026 billion) | $50 million |
| Diluted EPS | $0.32 | $1.00 | ($1.73) | $0.09 |
| Operating cash flow | Not separately stated here | Not separately stated here | ($3.135 billion) | ($3.870 billion) |
First-half revenue fell $1.543 billion year over year, primarily because of lower Defense, Space & Security (BDS) revenue. BDS revenue declined to $11.674 billion from $14.061 billion; Commercial Airplanes (BCA) revenue was $10.380 billion versus $10.284 billion; and Global Services (BGS) revenue rose to $8.612 billion from $7.816 billion.
First-half segment operating results were: BCA loss of $1.101 billion, improved from a $1.328 billion loss; BDS loss of $858 million versus earnings of $1.363 billion; and BGS earnings of $1.360 billion versus $972 million. BGS improvement was attributed mainly to higher commercial-services volume and favorable mix. Boeing reported non-GAAP first-half core operating loss of $962 million and core loss per share of $3.11; these measures exclude specified pension and postretirement items.
Financial position and liquidity
- Cash and cash equivalents were $10.090 billion and short-term and other investments were $1.358 billion at June 30. Management cited a combined cash and short-term investment balance of $11.4 billion, down from $16.2 billion at year-end 2021.
- Total debt was $57.2 billion, down from $58.1 billion at December 31, 2021. Short-term debt and current maturities rose to $5.4 billion from $1.3 billion, including maturities of $1.7 billion in Q1 2023 and $3.4 billion in Q2 2023.
- Unused revolving-credit capacity was $14.7 billion. Boeing said it expected the facilities to remain undrawn and serve primarily as backup liquidity; $6.3 billion was scheduled to expire in October 2022, with a one-year extension option on $3.1 billion.
- Total liabilities exceeded assets; shareholders’ deficit was $14.888 billion. Inventory was $79.917 billion, up from $78.823 billion at year-end, including continued 787 and 777X inventory buildup.
- Investing activities provided $6.231 billion, largely reflecting net investment proceeds; financing activities used $998 million, primarily for net debt repayments. Management said 2022 capital expenditures were expected to exceed 2021 levels.
Management said operating cash flow would remain under pressure until commercial deliveries ramped up. It nevertheless believed it was probable Boeing could fund operations for the foreseeable future, based on demand, production plans, cash timing, liquidity actions and access to additional liquidity if needed.
Material changes, outlook and notable items
- Contract and program charges: Boeing reported $1.541 billion of unfavorable first-half cumulative catch-up adjustments to operating earnings across long-term contracts, versus a $58 million favorable adjustment in the prior-year period. BDS recorded $1.270 billion of charges in Q1 on the VC-25B, T-7A, KC-46A and MQ-25 programs. The VC-25B reach-forward loss increased $686 million in the first half; additional risks remain on these and other fixed-price programs.
- Aircraft production: 787 deliveries remained paused pending rework and FAA actions; about 120 aircraft were in inventory. Boeing expected to incur about $2 billion of cumulative 787 abnormal production costs, mostly by the end of 2023, and had recorded a $3.46 billion 787 reach-forward loss in Q4 2021. It was producing at very low rates and expected a gradual return to five aircraft per month after deliveries resume.
- 777X: Boeing moved expected first 777X-9 delivery to 2025 and paused 777X-9 production during 2022 and 2023. It expected about $1.5 billion of abnormal production costs from the pause, expensed as incurred. First delivery of the 777X-8 freighter was expected in 2027.
- 737 MAX: Production had increased to 31 aircraft per month in 2022, with further gradual increases dependent on demand and supply-chain capacity. Boeing expected deliveries to China to resume in 2022 subject to regulatory approvals; approximately half of its 290-aircraft MAX inventory was designated for Chinese customers. The remaining $2.108 billion customer-concessions liability included $0.4 billion still subject to negotiation.
- Other operating conditions: Boeing cited supply-chain disruption, labor shortages, inflation and the Ukraine war. It recorded $212 million of first-quarter charges related to the war. A planned IAM District 837 strike beginning August 1, 2022 could disrupt St. Louis operations if prolonged.
- Backlog and demand: Total backlog was $371.730 billion, down from $377.499 billion at year-end. Boeing expected approximately 29% to convert to revenue through 2023 and 81% through 2026, while warning that timing was uncertain due to aircraft delivery, certification and production issues.
- Contingencies: Environmental remediation liabilities rose to $725 million; the high end of reasonably possible costs exceeded recorded liabilities by $1.015 billion. Boeing also disclosed ongoing 737 MAX litigation and government inquiries, including an SEC investigation for which it could not estimate a possible uninsured loss range, and an Embraer arbitration with no reasonably estimable loss range.
The filing provides operational expectations but no clear consolidated full-year revenue or earnings guidance. Boeing’s outlook remains conditional on regulatory approvals, successful rework and certification, supply-chain stability, production execution and market recovery.
Important facts for investors to verify
- Progress and timing of FAA approval and resumed 787 deliveries, including rework costs and production-rate plans.
- 737 MAX delivery and production progress, especially regulatory approval and customer deliveries in China.
- Further cost growth, schedule changes or reach-forward losses on the 777X and BDS fixed-price programs.
- Cash burn, debt maturities, liquidity availability and the conversion of backlog into deliveries and cash receipts.
- Developments in 737 MAX legal and regulatory matters, environmental obligations, and the Embraer arbitration.