What Can We Expect From Boeing’s Q4 2016 Earnings?

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The Boeing Company

Boeing (NYSE:BA) has had a rough yet eventful centennial year thus far. A slowing commercial airplane market and low oil prices led to the lowest order tally in close to six years. This greatly dented revenues throughout the year.  Earnings were hit early on in the year on the back of unprecedented costs arising in some of the its programs. Furthermore, Trump caused quite a stir in the second half of the year by trying hard to block a deal with Iran, while taking to Twitter to “cancel” the Air Force One. All this is bound to have hurt sentiment, at the very least, in the last quarter of 2016 also.

Commercial Orders Continue On Downtrend

Despite having robust backlogs and high delivery rates, Boeing and its main rival, Airbus, have suffered from lower commercial orders in 2016. Historically, orders from airlines have been cyclical in nature and it appears that the market is going through a slump at the moment. Boeing’s deliveries have fallen considerably over the last two years and will continue to do so considering the current economic environment. The weak economy has forced air carriers and governments to delay or cancel orders for new aircraft, including the flagship 787 Dreamliner. Furthermore, airliners built more than 20 to 30 years ago are still flying regular routes after being refurbished multiple times. This trend is likely to continue well into 2017 as well.

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Previously, the company had targeted to sell as many planes as it delivers. However, world’s largest plane manufacturer fell short of the goal this time around. According to the guidance, the company expected to deliver between 745 and 750 planes. In comparison, Boeing managed to book only 668 orders in the year, falling short of the 2015 figure by 13%.

Additionally, orders for widebody aircraft continue their downward trend. This is evident from the weak order activity throughout 2016 for Boeing’s main widebody aircraft programs, the 777 and the 787. The company ended the year with 58 net orders for the 787 and only 17 net orders for the 777. This is a dismal performance considering those two programs combined received more than 600 orders in the 2013-2014 period. Analysts expect 777 deliveries to decrease to about 3.5 a month in 2018, as the successor 777X model enters production. At present, Boeing manufactures about 8.3 planes a month.

Two Major Happenings In The Quarter

A lot happened in the quarter that is worth mentioning. However, the two main events that kept Boeing in the news were the Iran deal and Trump’s public meltdown regarding the mounting costs of the Air Force One program.

Through the quarter, there was heavy debate surrounding Boeing’s deal with Iran. The whole episode left investors guessing at every step. After procuring the required licenses from the U.S. Treasury Department, it seemed as though the deal would go through without any hitches. However, just as things seemed rosy for the company, the Congress, led by the Republicans, passed a bill to forbid American institutions from financing the deal. However, early last month, Boeing concluded its deal with Iran for 80 aircraft. That said, Boeing has not added the sale figure to their final net order tally for 2016, while Airbus has added the 100 planes its selling to the middle-eastern country in its annual tally. It is still unclear why this is, or what criteria were used to arrive at the decision. However, the head start Airbus received early on in the year, may have something to do with it.

Another important event that got Boeing in the news was when Trump took to Twitter to raise his concerns regarding the Air Force One deal. He claimed that costs at the program are expected to cross the $4 billion mark soon if things are not put in check. Since the statement was made, Boeing officials have been working closely with the President-elect to figure out a way to bring costs lower. Only recently, Boeing CEO Dennis Muilenburg assured Trump that the company will manufacture the planes for lesser than $4 billion.

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