Boeing Co. (BA) — Q1 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2021, compared with the same period in 2020. Boeing’s four reporting segments are Commercial Airplanes (BCA), Defense, Space & Security (BDS), Global Services (BGS), and Boeing Capital (BCC). The company said COVID-19 and continuing effects of the 737 MAX grounding continued to materially affect its business. The interim financial statements received an independent accountant’s review, not an audit.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $15.217 billion | $16.908 billion |
| Loss from operations; operating margin | $83 million; (0.5)% | $1.353 billion; (8.0)% |
| Net loss attributable to Boeing shareholders | $537 million | $628 million |
| Diluted loss per share | $0.92 | $1.11 |
| Net cash used by operating activities | $3.387 billion | $4.302 billion |
| Cash and cash equivalents at period end | $7.059 billion | $15.039 billion |
Revenue declined about 10% year over year. Cost of sales fell to $13.808 billion from $16.768 billion, and was 90.7% of revenue versus 99.2%. Boeing reported a non-GAAP core operating loss of $353 million and core loss per share of $1.53; these measures exclude specified pension and postretirement costs and should be considered alongside GAAP results.
Operating cash outflow improved year over year but remained substantial. Working-capital changes used $4.038 billion, including inventory growth and lower customer advances than in the prior-year quarter. Investing activities provided $2.764 billion, mainly reflecting investment proceeds; financing activities used $48 million. Cash plus short-term and other investments totaled $21.9 billion at quarter-end, down from $25.6 billion at December 31, 2020.
Total debt was $63.6 billion, unchanged from year-end; $6.0 billion was classified as short-term or current debt, versus $1.7 billion at year-end. Total liabilities were $167.9 billion and total equity was a deficit of $17.8 billion. Boeing had $14.8 billion of unused revolving credit capacity and reported compliance with debt covenants. It issued $9.825 billion of senior notes and used the proceeds to repay the same amount under its delayed-draw term loan; $4.0 billion remained on that loan, maturing in February 2022.
Segments and changes versus prior year
| Segment | Revenue, Q1 2021 | Operating earnings/(loss), Q1 2021 | Comparison with Q1 2020 |
|---|---|---|---|
| Commercial Airplanes | $4.269 billion | ($856 million) | Revenue down from $6.205 billion; operating loss improved from $2.068 billion |
| Defense, Space & Security | $7.185 billion | $405 million | Revenue up from $6.042 billion; operating result improved from a $191 million loss |
| Global Services | $3.749 billion | $441 million | Revenue down from $4.628 billion; earnings down from $708 million |
| Boeing Capital | $60 million | $21 million | Revenue and earnings broadly similar to prior year |
BCA’s lower revenue primarily reflected fewer 787 deliveries, partly offset by resumed 737 MAX deliveries. BDS improved mainly because Q1 2020 included large KC-46A and VC-25B charges; Q1 2021 included a $318 million increase to the VC-25B reach-forward loss. BGS weakened mainly due to reduced commercial services demand.
Total backlog was $363.9 billion, slightly above $363.4 billion at year-end. Boeing expected approximately 34% to convert to revenue through 2022 and 81% through 2025, while cautioning that conversion timing was uncertain.
Outlook, risks and unusual items
- Liquidity and cash flow: Management expected negative operating cash flows until commercial deliveries ramped up, but said it was probable Boeing could fund operations for the foreseeable future, based on its assumptions and access to liquidity. The company had suspended dividends and share repurchases and was reducing spending and workforce costs.
- Commercial aviation: Boeing expected commercial air travel to return to 2019 levels in 2023–2024, with a further few years for the industry to regain its long-term growth trend. It expected the 737 production rate to rise gradually to 31 per month by early 2022. The 777X first delivery was anticipated in late 2023; the program had a $6.493 billion reach-forward loss recorded in Q4 2020, with no increase in Q1 2021.
- 737 MAX: Boeing delivered 58 MAX aircraft in Q1 and had about 400 in inventory. It expected to deliver about half of the MAX aircraft in inventory at December 31, 2020 by year-end 2021, subject to regulatory approvals. MAX customer concessions and other considerations liability was $4.370 billion at quarter-end. Boeing estimated cumulative abnormal production costs of about $5 billion; $568 million was expensed in Q1 2021. In early April, it recommended temporarily removing certain MAX aircraft from service to address electrical-system issues and said it did not expect a material financial impact.
- 787: Production issues, inspections and rework reduced deliveries and increased inventory to about 100 aircraft, from about 80 at year-end. Boeing said most inventory was expected to be delivered by year-end 2021, but further delays, rate reductions, or lower demand could cause additional losses.
- Legal matter: Under its January 2021 Deferred Prosecution Agreement with the U.S. Department of Justice, Boeing agreed to payments totaling $2.51 billion and enhanced compliance measures. The company said it paid the $243.6 million penalty and transferred $500 million for accident victims’ beneficiaries during Q1; the $1.77 billion customer-compensation amount was included in previously reserved customer considerations. Other 737 MAX litigation and investigations remain, and Boeing could not estimate potential additional losses.
- Other exposures: The filing identifies risks from airline financial distress, order cancellations, supplier disruption, program cost overruns and certification delays, government budget changes, trade tensions, and environmental obligations. Recorded environmental remediation liability was $567 million; the high end of estimated reasonably possible remediation costs exceeded that liability by $1.059 billion.
Important facts for investors to verify
- Whether MAX approvals, deliveries and inventory reductions—including deliveries to China—track Boeing’s assumptions, and how the $4.370 billion customer-considerations liability changes.
- Whether 787 inspection and rework issues resolve, most inventory is delivered as expected, and production plans avoid further program losses.
- Whether the 777X meets its late-2023 delivery outlook and whether its existing reach-forward loss requires revision.
- How quickly operating cash flow improves, whether the $21.9 billion cash-and-investment balance and $14.8 billion of available credit remain adequate, and how debt maturities are managed.
- Whether BDS fixed-price development programs, including VC-25B and KC-46A, incur additional charges, and whether MAX-related legal proceedings produce further material costs.