Wednesday, August 2, 2017

Where Will Boeing Get Its Next Cash?

This is another big and broad topic. Boeing regularly reports cash inflows and a prop to its stock price going higher. Nothing is forever and Boeing knows this and has some kind of plan for its future cash infusions.

This all starts with will future sales and its completions of sales contracts. This cycle is probable but has some risk in it such as Boeing's recent Transaero order book adjustment which will show up in the July Boeing reports. The blog is about the June reporting numbers of Boeing's backlog by unit and list price. The backlog/price is Boeing's fuel for future performance and stock appreciation.

Below is a snapshot of Boeing's undelivered units and its associated list prices ending June 30th 2017. An addendum WI report for July will show all updates per Boeing web reporting.

What the chart estimates is a cash backlog from undelivered units with a value of $831.5 Billion. This is  a fluid and dynamic number where month to month can change dramatically. The change is often surprising,  as production remains somewhat stable. The backlog cash value can change from the back end as orders are cancelled and recognized by Boeing accounting. The front end is its production stream with its deliveries.

Using the analogy of a fuel tank on a automobile shows the concept best. A full tank of fuel can take the company a long way while pleasing its passengers , the stockholder. Sometimes vehicles has dual or spare fuel tanks. The 737 program is Boeing's main tank and the wide body programs are under a half a tank as a dual tank, which will take the Boeing Corporation only so far into the future.

The 737 program represent 58% of its future cash flow.

Per Type Cash Backlog as a percentage:

  • 737 58%
  • 747  1%
  • 767  2%
  • 777  20%
  • 787  19%

Total 100% of 832 Billion

As can be derived, the single aisle program (737) is the critical piece to Boeing's aspirations going forward. Boeing hopes to change the balance where the wide body will share a potential cash value with the single aisle program. Using above numbers the 58% single aisle cash backlog of the total 832 billion is compared with the 42% for the wide body contribution of its cash flows.

Contract price is about 50-55% of list price as Boeing offers package deals for its preferred customers who have bought Boeing products over time. Therefore, it is a solid estimate for Boeing's backlog cash amounting to somewhere in the $425-$460 Billion range.

A Boeing goal would be to continue a robust sales campaign for its varied wide body fleet. The per unit price for wide bodies has an immediate impact of its cash backlog. 

The 747 program has died. 

The 767 program is on freight life support. 

The 777 program is caught in the door of transition from 777-300ER going to 777X. The backlog of older 777 has a reduced production flow since it is running out of 777-300-ER's to build and the 777X hasn't been assembled. So the 777 cash potential will increase as a cash reserve, but diminish as a cash flow during the next two years. 

Boeing will have to rely on its 737 program for cash flows during the next two years until the 777X entry into market.

The 787 wide body program is the secret Boeing sauce. The 787-10 is a cow tipping point of cash for Boeing. More orders for this type are coming and more cash from this type will emerge. Its too early to tell what the 787 program will do by year's end, but it may surprise the financial prognosticators by year's end.   Boeing has the same general numbers this blog has obtained from Boeing's own website.

Therefore, its emphasis is to bring a high amount of backlog and a balance with its various commercial programs. The sales campaigns are not for public view and are actively going forward. Boeing is attacking its future while burying its dead along the way. A sad farewell for the 747 is happening while a robust 777X project is emerging as its latest star in the making. A future cash flow is forming in 2017 and 2018. It is shown through a MAX effort for the 787-10 and the 777-9X. The marketing team is keeping pace with its production counterparts.