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Inside Boeing’s Commercial Airplane Prospects for the Rest of 2016

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Aug. 18 2020, Updated 5:31 a.m. ET

Slow first quarter deliveries

For the first quarter of 2016, Boeing (BA) delivered 176 aircraft, which is 4% less than the 184 aircraft it delivered in 1Q15. It delivered 131 737s, 30 Dreamliners, 24 777s, one 767, and one 747. This resulted in a 6% YoY (year-over-year) decline in Boeing’s Commercial Airplanes segment revenue to $14.3 billion for 1Q16.

However, operating income declined by a significant 36% to $1 billion. The KC-46 Tanker program’s $162 million pre-tax charge, the 747 program’s $70 million pre-tax charge, and higher spending on research and development costs all contributed to this decline. As a result, operating margins too declined to 7.2% in 1Q16 from the 10.5% it reported in 1Q15.

Despite the slowdown, Boeing’s deliveries are still higher than rival Airbus, who delivered only 125 aircraft in 1Q16, in the same period. An engine issue on the new Airbus 320neo caused some delay on deliveries.

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Outlook

Boeing has a commercial airplane backlog of 5,700 aircraft valued at $424 billion. For 2016, BA maintained its delivery guidance of 740-745 jets. This is, however, lower than the 762 aircraft delivered in 2015, owing to the production cut in 747s and lower volumes on the transition of 737 productions to 737MAX.

Despite production cuts, revenues for BA’s Commercial Airplane segment are expected to be in the range of $64 billion–65 billion, similar to revenues in 2015. This means that revenue per aircraft is expected to improve due to the better delivery mix (transition to MAX and higher Dreamliner sales). BA is also predicting that its operating margin will expand to 9% from 7.8% in 2015.

Peers

Boeing’s competitors in the Commercial Airplane segment include Airbus, Bombardier, and Embraer (ERJ). Its competitors in the Defense segment include Lockheed Martin (LMT), United Technologies (UTX), and General Dynamics (GD). Boeing makes up 4.4% of the PowerShares BuyBack Achievers Portfolio ETF (PKW).

In the next part, we’ll analyze Boeing’s defense segment.

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