Boeing Co. (BA) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Comparative figures are for the three months ended March 31, 2022, except balance-sheet comparisons, which are to December 31, 2022. Figures are in U.S. dollars; amounts are in millions unless stated otherwise. The interim financial statements were reviewed by Deloitte, not audited.
Business context and results
Boeing operates Commercial Airplanes (BCA), Defense, Space & Security (BDS), and Global Services (BGS). Total revenue rose 28% to $17.921 billion, principally from higher 737 and 787 deliveries, lower BDS development-program charges, and recovering commercial-services demand. Boeing remained loss-making, though its operating and net losses narrowed substantially from Q1 2022.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $17.921 billion | $13.991 billion |
| GAAP operating loss / margin | $149 million / (0.8)% | $1.162 billion / (8.3)% |
| Net loss attributable to Boeing shareholders | $414 million | $1.219 billion |
| Diluted loss per share | $0.69 | $2.06 |
| Non-GAAP core operating loss / margin | $440 million / (2.5)% | $1.445 billion / (10.3)% |
| Non-GAAP core loss per share | $1.27 | $2.75 |
| Cash used by operating activities | $318 million | $3.216 billion |
Cost of sales was $15.998 billion, or 89.3% of revenue, versus $13.638 billion, or 97.5%, a year earlier. The improvement in the ratio primarily reflected lower BDS development-program charges. Other income was $302 million, including higher interest income on short-term investments; interest and debt expense was $649 million. The income tax benefit was $71 million.
By segment, BCA revenue was $6.704 billion and operating loss $615 million; BDS revenue was $6.539 billion and operating loss $212 million; BGS revenue was $4.720 billion and operating earnings $847 million. BCA and BDS operating losses narrowed year over year, while BGS earnings increased.
Cash and cash equivalents were $10.812 billion at quarter-end, down from $14.614 billion at year-end; short-term and other investments were $3.955 billion, up from $2.606 billion. The cash-flow statement reports a $3.811 billion decrease in cash, cash equivalents and restricted cash, reflecting operating, investing and financing flows, including investment purchases. Debt totaled approximately $55.4 billion, down from $57.0 billion; $7.9 billion was classified as short-term. Boeing reported $12.0 billion of unused revolving-credit capacity and compliance with debt covenants. Shareholders’ deficit was $15.508 billion.
Changes versus the prior comparable period
- Revenue increased $3.930 billion. BCA revenue rose $2.510 billion, primarily on higher 737 and 787 deliveries; BDS rose $1.056 billion; BGS rose $406 million.
- GAAP operating loss improved by $1.013 billion and shareholder net loss improved by $805 million. BDS benefited from substantially lower unfavorable development-program adjustments than in Q1 2022; BCA benefited from increased deliveries and absence of certain prior-year charges.
- Operating cash use improved by $2.898 billion, mainly due to a smaller net loss and more favorable working-capital movements, including higher customer advances and progress billings.
- Backlog increased to $411.446 billion from $404.381 billion at year-end. Boeing estimated that approximately 33% would convert to revenue through 2024 and 83% through 2027, but noted substantial timing uncertainty.
Outlook, management commentary and principal risks
- No consolidated earnings or cash-flow guidance is stated in the supplied filing text. Management said results will continue to be affected by supply-chain stabilization, labor stability and delivery ramp-ups. It expected 2023 capital expenditures to exceed 2022 levels.
- Production plans included increasing 737 output to 38 aircraft per month later in 2023; returning 787 production from 3 to 5 per month during 2023; and continuing combined 777/777X production at 3 per month. Boeing expected 737-7 certification and initial deliveries in 2023, 737-10 certification flight testing in 2023 with first delivery in 2024, and the first 777X-9 delivery in 2025. These are expectations, subject to execution and regulatory approval.
- Production quality and supplier issues remain significant. Boeing disclosed a supplier manufacturing-process issue affecting certain 737-7, 737-8 and military-derivative aircraft, expected to delay near-term deliveries while affected aircraft are reworked. It said there was no immediate safety-of-flight issue and the in-service fleet could continue operating safely.
- Boeing had approximately 225 737 aircraft in inventory, including about 140 configured for Chinese customers, and approximately 95 787 aircraft in inventory. It expected to deliver most of the relevant inventory by the end of 2024, subject to delivery and remarketing conditions. China delivery timing remained uncertain.
- Q1 abnormal production costs were $505 million: $379 million for the 787 and $126 million for the 777X. Boeing expected up to $2.8 billion of cumulative abnormal 787 costs, with most expected by the end of 2023. The 777X production pause was expected to generate about $1.5 billion of abnormal costs; cumulative costs recorded through Q1 were $0.5 billion.
- Fixed-price development programs carry risk of further losses. Boeing recorded a $245 million Q1 increase in the KC-46A reach-forward loss, linked primarily to supplier-quality rework. The filing also identifies continuing exposure on VC-25B, KC-46A, MQ-25, T-7A and Commercial Crew programs.
- Other disclosed exposures include $1.723 billion of 737 MAX customer concessions and related liabilities; $788 million of environmental remediation liabilities, with the high end of the reasonably possible range exceeding recorded liabilities by $1.043 billion; and $15.328 billion of aircraft financing commitments, all relating to customers Boeing considered below investment grade.
- Legal matters include pending litigation related to the 737 MAX accidents and an Embraer arbitration. Boeing said it could not reasonably estimate potential losses, if any, beyond available insurance for the remaining MAX matters or from the arbitration. It remains subject to obligations and oversight under its U.S. Department of Justice deferred prosecution agreement.
- Management cited supply-chain disruption, labor instability, inflation, aircraft certification and delivery execution, fixed-price contract performance, U.S. government budget uncertainty, China market exposure, and access to capital markets as risks. Moody’s upgraded its credit-rating outlook from negative to stable during Q1; Boeing said the rating itself remained unchanged.
Most important facts for investors to verify
- Whether aircraft production, certification and delivery expectations are achieved, especially for the 737 and 787, and whether the 737 supplier issue causes further delays or costs.
- Whether inventory aircraft—particularly those configured for China—can be delivered or remarketed on the expected timetable.
- Whether supply-chain, labor and quality problems lead to additional abnormal production costs, customer concessions or program-accounting charges.
- Whether BDS fixed-price development programs, including KC-46A, generate further reach-forward losses or rework charges.
- Whether operating cash flow improves sustainably while Boeing manages its debt, near-term maturities, financing commitments and liquidity.
- The timing and potential financial effects of legal, environmental, tax and other contingent matters, for which some losses cannot currently be estimated.