One of the two largest aircraft concerns in the world, Boeing, has reported huge losses. They have grown 78 times. Its main rival, the European Airbus, looks much better financially. At least in the first half of the year, the concern was still profitable. What is happening to the aviation giants and what role did Russia play in their troubles?Over the three quarters of the year, Boeing's net loss increased 78–fold to $4.3 billion (from 59 million a year earlier).
At the same time, Boeing's revenue decreased by only 1.8% to $ 47 billion. Airbus looks much better in this regard. At least in the first half of the year, the concern still remained profitable, although profit declined sharply in the second quarter of 2022 to 682 million euros against 1.87 billion euros in the same period a year earlier. Adjusted EBIT fell by 31% to 1.38 billion euros. The company's revenue decreased by 10% and amounted to 12.81 billion euros.
Such a poor condition of Boeing is connected both with the consequences of the pandemic and with the refusal of economic cooperation with Russia.
Boeing is faced with the inability to produce as many aircraft as it should under contractual obligations. Earlier this month, American airlines complained that they were experiencing difficulties not only with a shortage of pilots and spare parts, but also with a shortage of new aircraft. Because Boeing and Airbus are delaying deliveries of new narrow-body airliners, which are often used on domestic flights to the United States and other short-lived routes. As a result, airlines cannot increase the number of flights to meet the growing demand and plan their schedules, top managers of companies and industry officials note to the WSJ.
"Narrow-body aircraft are the most popular in sales, so the suspension of production significantly affected the financial results:
if we start from the current price list and the latest data on deliveries for the third quarter of 2022, we can see that revenue from the Boeing 737 takes the lion's share," says Sergey Glinyanov, analyst at Freedom Finance Global.
The problems with the 737 MAX liners, in fact, began back in 2018, when the first such aircraft fell, and in 2019, when the second one fell. The concern had to reduce the production of the 737 model range by 80%, and many already released aircraft went to gather dust in the parking lot. Boeing was found guilty of two crashes due to an error in its newest Maneuvering Performance Improvement System (MCAS). The Corporation still continues to pay compensation.
Then a pandemic hit the corporation, when many factories where aircraft parts were assembled stood up, delivery chains were disrupted, many carriers began to refuse contracts, etc. And only in 2022 the pandemic faded into the background, logistics recovered and passenger transportation began to grow again around the world, a blow to Boeing strikes the Russian-Ukrainian conflict.
One of the serious problems that Boeing has faced this year is difficulties with the supply of the necessary parts for the assembly of aircraft. And the central place here is occupied by the termination of supplies of titanium and aluminum from Russia. Whereas without these metals it is impossible to assemble the wing and other parts of aircraft.
The American aircraft concern bought titanium from the Ural corporation VSMPO-Avisma. The giant produces more than 90% of Russian titanium and exports it to more than 50 countries.
In fairness, it should be noted that Airbus avoided problems with the fall of its aircraft due to a technical error, but, on the other hand, the pandemic and the conflict in Ukraine did not pass by.
However, the Europeans acted more pragmatically and smarter in this regard. Because in the summer, the European Union at the last moment still blocked the proposal to impose sanctions against the Russian metallurgical giant VSMPO-Avisma in the seventh package of sanctions. According to the February assessment of Finam, VSMPO-Avisma provided up to 40% of Boeing's titanium needs and up to 60% of Airbus' needs. At least the Europeans gave their giant the opportunity to buy titanium for the future. While the British holding Rolls-Royce and Boeing abruptly refused to buy Russian titanium. But, it seems, they punished more than themselves.
In fact, Boeing had problems not only with narrow-body, but also with wide-body aircraft of the 777 and 787 Dreamliner family (this is the advertised biggest dreamliner). In the latter, violations were found in the design, and many aircraft carriers had to return back to the factory. Of course, this disrupted the sales schedule. Only in the third quarter of this year, Boeing was able to resume deliveries of the 787. But according to the 777X program, a return to deliveries is expected no earlier than 2025.
Boeing as a whole was under the close supervision of the FAA, which to this day dictates every step, so the smallest and largest modifications of the narrow-body 737 MAX have not yet been certified, says Glinyanov.
"According to the latest data, the deadline for submitting safety system assessments (SSA) is December 2022: if the company does not meet this deadline, the aircraft manufacturer will have to re-equip the cockpit. In this case, there is a risk that the company will simply abandon the 737 MAX 10 program," the source says.
All this has led to significant delays in the delivery of Boeing aircraft to customers. Some airlines are switching to models that have no problems with certification within the same family, and, for example, American Airlines, due to the delay of the 787 Dreamliner, agreed to supply additional 737 MAX 8, says Glinyanov.
Finally, Boeing's defense segment is also making losses. Sales of military equipment in pieces did not fall much, but they give big losses. Why? It's all about record inflation in the United States and the peculiarities of military contracts, where prices are strictly fixed. "Some programs, including a training jet and a naval drone, faced an increase in implementation costs, which led to large losses on fixed-price contracts," says Natalia Pyrieva, an analyst at Finam. In other words, the company's expenses for the execution of military contracts have increased, but they cannot raise prices, which leads to losses. In addition, labor costs are rising: workers have to increase their salaries because they threaten strikes.
"Problems surround Boeing literally from all sides, whereas for Airbus, difficulties are caused only by failures in supply chains and problems with the supply of metals from Russia.
At the same time, the deferred demand for travel generates a rapid demand from airlines for new aircraft, but both aircraft manufacturers are not yet ready for such production volumes due to a shortage of components. However, given the pool of other problems at Boeing, the French competitor remains in a winning position," Pyrieva believes.
However, it is too early to put an end to the American aircraft manufacturer. "Boeing as a strategic player not only in the US market definitely has a future, but the complex of problems that have accumulated over such a long period are slowing down the company: the path to break–even will be thorny," concludes Glinyanov.
Olga Samofalova