Morningstar | Boeing Continues to Generate Prodigious Amounts of Cash but It's Dealing With the 737 MAX Groundings
Although Boeing's 2017 revenue was flat, 2018 saw a rebound in growth and we anticipate this growth trend to continue as the 737 and 787 ramp up and the newly formed services business hits its stride. We think Boeing's key challenge will be meeting demand in commercial aircraft through production-rate increases, while introducing the new 777X in 2020. Commercial airplane growth is powered by a backlog of nearly 6,000 aircraft, which will enable Boeing to boost future production, primarily in narrow bodies, with the 737 going to 57 per month in 2019 and then potentially 63 per month in 2020. Boeing delivered 806 commercial aircraft in 2018 (up from 763 in 2017) and targets delivery of about 900 aircraft in 2019; we anticipate deliveries going above 1,000 in 2022. Recent U.S. defense budget increases have buoyed growth in Boeing's defense business. And the company's wins on the T-X trainer, MQ-25, and the UH-1N replacement, as well as the initial phase of GBSD (modernization of U.S. land-based nuclear missiles), will also drive revenue growth. However, we do think there will be some margin headwinds over the next few years due to development activities on these recent program wins.We anticipate margin expansion and operating cashflows to increase as the 787 deferred production burns down. The company's earnings growth and cash generation will emanate primarily from its commercial airplanes unit, where we forecast margins hitting 15% by 2020. The 737 ramp and mix shift to the new MAX drives this earnings growth. Moderating research and development plus improved 787 margins (related to supplier pricing step-downs, the introduction of the 787-10, and block extensions) should also improve margins. Boeing continues to toy with the idea of launching a new next generation midsize aircraft and we think management may secure authority to offer from the board in 2019 with formal launch in 2020. Lastly, we believe Boeing's planned acquisition of Embraer's regional jets will unlock strategic opportunities--a younger engineering workforce, military transport aircraft sales, and a global production footprint--for Boeing.The Boeing is an aerospace firm. The company's segments include: Commercial Airplanes, which develops, produces and markets commercial jet aircraft and provides fleet support services, mainly to the commercial airline industry; Defense, Space and Security, which engages in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for strike, surveillance and mobility, vertical lift, and commercial derivative aircraft; Global Services, which provides supply chain and logistics management, pilot and maintenance training systems and services, and data analytics and digital services; and Boeing Capital, which manages overall financing exposure.
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