Boeing Co. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results. Boeing operates Commercial Airplanes (BCA), Defense, Space & Security (BDS), Global Services (BGS), and Boeing Capital (BCC).
Financial performance and position
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $76.6 billion | $101.1 billion |
| Operating income (loss), GAAP | ($2.0 billion) | $12.0 billion |
| Operating margin, GAAP | (2.6%) | 11.9% |
| Net income (loss) | ($636 million) | $10.5 billion |
| Diluted EPS | ($1.12) | $17.85 |
| Operating cash flow | ($2.4 billion) | $15.3 billion |
| Cash and cash equivalents at year-end | $9.5 billion | $7.6 billion |
| Total debt at year-end | $27.3 billion | $13.8 billion |
| Total backlog at year-end | $463.4 billion | $490.5 billion |
- Revenue fell 24% year over year, principally because of lower 737 MAX deliveries and an $8.259 billion reduction in revenue for estimated customer concessions and other considerations, net of $500 million in insurance recoveries.
- BCA recorded a $6.657 billion operating loss, versus $7.830 billion operating profit in 2018. BDS operating profit rose to $2.608 billion from $1.657 billion; BGS rose to $2.697 billion from $2.536 billion. BCC operating profit declined to $28 million from $79 million.
- Inventory increased to $76.6 billion from $62.6 billion, including aircraft produced but not delivered during the MAX grounding. The company reported negative total shareholders’ equity of $8.6 billion at year-end.
- Boeing generated $5.7 billion of cash from financing activities, including $13.2 billion in net borrowings. It had $9.6 billion of unused revolving credit capacity and $6.1 billion of commercial paper outstanding. Share repurchases were suspended; 2019 cash dividends paid were $4.6 billion.
Material changes and unusual items
- The FAA grounded the 737 MAX in March 2019 after two fatal accidents. Boeing reduced production from 52 to 42 aircraft per month and announced a temporary production suspension beginning January 2020. The company had approximately 400 MAX aircraft in inventory at year-end.
- The MAX grounding and delivery delays drove the steep decline in revenue, margins, and operating cash flow. Boeing paid $1.2 billion to MAX customers for disruption during 2019 and recorded an $8.259 billion net revenue charge. The remaining customer concessions and other considerations liability was $7.389 billion at year-end.
- Boeing estimated that changed production and delivery assumptions would add approximately $6.3 billion to costs in the current 737 accounting quantity, reducing margins when deliveries resume. It also estimated approximately $4.0 billion of abnormal production costs to be expensed in 2020 and 2021.
- Other notable items included $489 million of 2019 reach-forward losses on Commercial Crew, $148 million on KC-46A, a $293 million Aviall trade-name impairment, a $395 million divestiture gain, and a $371 million tax benefit from state audit settlements. The filing reports fourth-quarter additional MAX customer charges of $2.619 billion and a $410 million Commercial Crew loss provision.
- At year-end, BDS backlog was $63.9 billion and BGS backlog was $22.9 billion. BCA backlog declined to $376.6 billion from $408.1 billion.
Outlook, commentary, and risks
- Boeing’s year-end estimate assumed regulatory approval would allow MAX deliveries to resume in mid-2020, with production restarting at low rates and gradually increasing over several years. These were management assumptions, not guaranteed outcomes; regulators control approval timing and conditions.
- The company reported that MAX certification, customer negotiations, production restart, supplier readiness, legal claims, and government investigations remained uncertain. Boeing said it could not reasonably estimate a range of potential losses, if any, from MAX-related litigation and investigations beyond recorded amounts and available insurance.
- Other program risks include further cost overruns or delays on fixed-price development work, notably Commercial Crew and KC-46A. The Starliner’s December 2019 uncrewed flight test did not dock with the International Space Station; NASA was evaluating whether another uncrewed mission would be required.
- Boeing targeted first delivery of the 777X in 2021; its first flight occurred January 25, 2020. The company also planned to reduce 787 production from 14 per month to 12 in late 2020 and 10 in early 2021, then return to 12 in 2023.
- The planned $4.2 billion acquisition of an 80% stake in Embraer’s commercial aircraft and services operations remained subject to regulatory approvals, with closing expected in the first half of 2020. Boeing disclosed a $100 million termination fee if the deal failed because required antitrust approvals were not obtained.
- Other risks include customer and airline financial health, supplier performance, fixed-price contract execution, defense budget and appropriations uncertainty, competition, international trade restrictions, debt-market access, pensions, environmental remediation, and customer-financing exposure. The environmental remediation liability was $570 million; the company noted that the high end of reasonably possible remediation costs exceeded recorded liabilities by $1.077 billion.
Key facts for investors to verify
- Actual timing and jurisdictional conditions for MAX certification, return to service, deliveries, and production restart; compare actual customer payments and concessions with the $7.389 billion liability.
- Whether actual 737 program costs, abnormal production expenses, inventory levels, and cash flows remain consistent with the filing’s $6.3 billion and $4.0 billion estimates.
- Progress and cost estimates for Commercial Crew, KC-46A, and 777X, including any additional reach-forward losses or certification delays.
- Liquidity, debt levels, credit ratings, and access to committed financing as MAX-related cash needs evolve; also track the planned Embraer transaction and its funding.
- Developments in MAX-related litigation and government investigations, for which Boeing said potential losses could not be reasonably estimated; the auditor identified the MAX liability and program estimates as critical audit matters.