Aerospace manufacturer Boeing pleased investors last week in reporting what can only be described as stellar Q1-2018 financial and supply chain performance.  Included in the results was additional evidence of an optimistic strategy directed at aftermarket services.  Boeing 737 production line

Supply Chain Matters has previously highlighted Boeing’s Q1 operational and supply chain operational performance.

Boeing’s Q1 overall financial performance highlights included:

  • Total quarterly revenues of $23.4 billion, up from $21.9 billion reported in the year-earlier quarter.
  • Earnings from operations growing 3 percent to $2.7 billion.
  • Net earnings reported as $2.5 billion, up from $1.6 billion in year-earlier quarter.
  • Operating cash flow of $3.1 billion generated in the quarter.
  • Order backlog growth reported as $486 billion, representing 5800 aircraft.

Of further significance was the commercial aircraft group’s contributing revenues of $13.7 billion with operating margins reported as 11 percent.

Global Services Business Unit

During the formal briefing call with investors and equity analysts, Boeing Chairman, President and Chief Executive Officer Dennis Muilenburg made special mention of the company’s relatively newly formed Global Business Services business unit which reported revenues of $3.9 billion, an 8 percent growth over the prior year’ performance. Net earnings grew 3 percent to $644 million while operating margin declined 0.8 percentage points to 16.3 percent which is still a relatively healthy number. According to Boeing, this business unit which provides aircraft maintenance, data analytics and supply chain services is growing twice as fast as the broader aircraft services segment. In the briefing, Boeing’s CEO declared that the company will continue to set aggressive goals for this unit.

In last’s year’s 2017 Predictions for Industry and Global Supply Chains, Supply Chain Matters called attention to a brewing conflict that indeed involved control of after-market services and repair parts which has traditionally provided added revenues and hefty margins for the industry’s component suppliers. Both OEM’s, and especially Boeing, continued with efforts in 2017 to form its new service business units to take broader control of the post-aircraft sale segment.  That added another dimension of building tension and that has led to increased efforts toward consolidation either through mergers and acquisitions among major component suppliers or added supply chain horizontal integration for Boeing. With the latest performance numbers and added optimism from Boeing, we anticipate further supply chain related tensions.

Airbus Financial Performance

Contrasting the financial performance of Boeing was that of rival Airbus, which acknowledged that a shortage of A320neo engines and back-loaded aircraft deliveries impacted financial performance. Consolidated total revenue for the First Quarter was reported to be € 10.1 billion vs. € 11.4 billion in the year-earlier quarter. Adjusted EBIT was reported as € 14 million, a significant jolt.

Airbus management reiterated its previous financial guidance indicating that the European aircraft manufacturer remains committed toward achieving its previously declared 2018 operational and financial performance goals.

Specifically, regarding the A320neo program, Airbus reported that new engines with a knife edge seal fix have started to be received from supplier Pratt & Whitney and GTF-powered aircraft deliveries have now resumed after several weeks of suspension. Airbus further acknowledged that it is working closely with the other A320neo engine supplier, CFM International, to catch-up on the production delays it encountered. Given the significant demand for the A320neo and the robust backlog, Airbus has started a feasibility study with its supply chain ecosystem to investigate higher production rates.

Stated in its financial performance release: “Airbus and its engine manufacturers are committed to delivering in line with the full year overall delivery objective of around 800 commercial aircraft, which leaves a lot to do in the second half of 2018.”

The above statement summarizes what many in the industry likely view as a dynamic and challenging Airbus operational supply chain environment for the remaining weeks and months of 2018.There is little room for variance.

Meanwhile. Boeing has the opportunity to widen the gap in 2018 recognition for operational performance.

Bob Ferrari

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