In this commercial aircraft industry specific commentary, Supply Chain Matters contrasts the recent quarterly performance of GE Aerospace and Boeing.

We have provided this contrast to depict this industry’s unique product demand and key supply challenges.

 GE Aerospace Quarterly Performance

As a final result of the breakup of the former General Electric, aircraft engine provider GE Aerospace reported in its first ever quarterly financial performance for the period ending on March 31. The now independent company as of the beginning of April is a provider of jet engines for both the Airbus A320neo family of single aisle aircraft, and for Boeing’s 737 MAX single aisle aircraft.

These results are the first time that aircraft industry supply chain participants can garner a more specific perspective on the revenue, profitability and cash flow basis of this key supplier.

Quarterly Performance Highlights

For the first quarter, adjusted revenues increased 15 percent to $8.1 billion. Operating profit rose 24 percent to $1.5 billion.

Operating profit margin reportedly increased 19.1 percent, an increase of 140 basis points. Free cash flow in the recent quarter amounted to $1.7 billion, reflecting an increase of $0.8 billion.

Commercial Engines and Services order rates increased by 34 percent, and equivalent revenues amounted to $8.3 billion. With the addition of Defense and Propulsion Technologies, total engine related revenues amounted to $11.3 billion.

GE Aerospace CEO Larry Culp commenting to Bloomberg on the latest quarterly financial performance, made the observation that for global based airlines, the slowed delivery of aircraft indicates that “you can’t really find a delivery slot for a new single aisle aircraft this decade.” The implication is that airlines are now hanging on to older aircraft in order to support expanded air travel demand.

More Optimistic Full Year Outlook

In the reported release, CEO Culp indicated that given to the solid start of 2024, the supplier is raising its full-year outlook. The company now expects operating profits to be in the range of $6.2 billion to $6.6 billion vs. a prior guidance of from $6.0 billion to $6.3 billion.  Revenue growth is expected to continue to be in the mid to high teens.

Added Production and Supply Chain Investments

This producer has indicated plans to invest over $650 million in both manufacturing facilities and in augmented supply chain capabilities. Regarding the latter, reportedly $100 million is being channeled into added supply chain improvements.

 

Boeing Quarterly Financial Performance

Last week in considerable contrast, Boeing reported 2024 first quarter financial performance. As Supply Chain Matters has highlighted in multiple recent updates, an ongoing corporate crisis related to aircraft production quality deficiencies and other challenges has led to announced senior management changes that continue to surround this aircraft maker.

Quarterly Financial Performance Highlights

The company’s commercial aircraft business unit reported $4.65 billion in revenues, which represented a 31 percent decline from the year-earlier period. Reportedly an operating loss of $355 million widened to 24.6 percent from 9.2 percent in the year-earlier period.

What dominated much of financial media headlines in the latest reporting was a cash burn rate of $3.9 billion in the latest quarter. Since the plane maker had previously forecasted a cash burn rate of as much of $4.5 billion, the actual number was viewed as better than expected.

Talk about revised expectation in the midst of an ongoing crisis.

According to reporting by business broadcasting network CNBC, company CEO David Calhoun, who is stepping down by the end of the year, indicated to employees last week: “Lower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else. We are absolutely committed to make certain our regulators, customers, employees, and the flying public are 100 percent confident in Boeing.

The company’s commercial aircraft profitably hits was reportedly influenced by the impact of a reported $443 million in added compensation paid to Boeing’s airline customers that led to a brief temporary grounding and have led to reduced monthly output of Boeing 737 MAX single aisle aircraft.

Overall performance was reportedly aided by the company’s Defense and Space subsidiary reporting $151 million in profitability from operations after a loss a year earlier.

The commercial aircraft manufacturer is reportedly being squeezed not only by reduced revenue, but the rising cost of keeping suppliers financially afloat until its production system can more smoothly support higher manufacturing rates again.

Despite all of the ongoing production challenges, Calhoun reiterated the company’s objective in meeting its financial goals for investors. He told CNBC that reaching the company’s stated goal set of $10 billion in annual free cash flow will likely take six months longer than previously anticipated, but “I still believe it will happen in that two-year window”.

Focus on Fuselage Supplier Spirit AeroSystems

According to a published report from Bloomberg, Boeing is receiving fewer 737 fuselages with defective parts from supplier Spirit AeroSystems since instituting tougher quality controls at the start of March.

Regarding Boeing’s announced intent to buy back Spirit, Calhoun reportedly indicated that a deal “more than likely” can be reached during the second quarter. He specifically indicated: “Spirit is working with its other customers, is taking actions to ensure that all of those relationships are what they need to be. We are going to be patient and let them get their job done with their respective customers and we’ll get the deal done.”

Supply Chain Matters has highlighted reports that rival Airbus is one of Spirit’s customers and has indicated that the European plane maker will be made whole on supply contracts it currently has with the fuselage and aircraft structures supplier.

 

Added Thoughts

We have provided this contrast to depict this industry’s unique product demand and key supply challenges.

GE Aerospace is clearly benefiting from increased demand for both new aircraft and likely the re-fitting of existing older aircraft. While Boeing’s monthly production rate is now under close scrutiny, Airbus continues to produce single aisle aircraft from five different assembly facilities globally.

Echoing the challenges and perceptions currently surrounding the industry, GE Aerospace CEO Larry Culp specifically noted in the company’s earnings release, the following in-part statement: “Moving forward as a focused global aerospace leader, we will continue to prioritize safety, quality, delivery, and cost- always in that order- while investing in our future and driving long term profitable growth.”

Perhaps that is the statement that this industry expects from Boeing’s future Board chair and CEO, respectively.

 

Bob Ferrari

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