How Boeing Makes Money

Defense, Space and Security segment is the largest revenue source

Boeing Co. (BA), one of the world's leading aerospace companies, develops and manufactures commercial jets, military aircraft, weapons systems, and strategic defense and intelligence systems. The company offers services and support to customers globally and provides financing for orders and deliveries. One of Boeing's biggest customers is the U.S. government.

One of Boeing's biggest rivals, especially for commercial aircraft, is the Europe-based aerospace firm Airbus SE (EADSY). Boeing also has aerospace rivals based in Russia, China, and Japan. Additionally, the company's defense and space business faces competition from major players like Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC), Raytheon Co. (RTX), General Dynamics Corp. (GD), U.K.-based BAE Systems PLC (BAESY), and Elon Musk's Space X.

Key Takeaways

  • Boeing produces commercial and military aircraft, weapons systems, strategic defense and intelligence systems, and related products and services.
  • Defense, Space and Security have overtaken Commercial Airplanes as Boeing's largest revenue source.
  • The U.S. government is one of Boeing's largest customers.
  • Boeing plans to build a new manufacturing facility in Illinois.

Boeing's Financials

Boeing announced in late July financial results for Q2 of its 2021 fiscal year (FY), the three-month period ended June 30, 2021. Net earnings for the quarter were $567 million, a significant improvement form the net loss of $2.4 billion in the year-ago quarter. Revenue rose 44.0% year over year (YOY) to $17.0 billion. Earnings from operations, which Boeing uses to measure profit in its individual business segments, was $1.0 billion in the second quarter, a significant turnaround from the $3.0 billion loss from operations reported in the year-ago quarter.

Boeing said in its quarterly earnings report that revenue growth was driven by higher revenue in commercial airplanes and services volume. The company noted that it was continuing to make progress on returning its 737 MAX aircraft to service. It was originally grounded in March 2019 after being involved in two fatal air crashes within the span of five months. The Federal Aviation Administration (FAA) approved the 737 MAX's return to service in November 2020. Since then, Boeing has delivered over 130 of the aircraft and airlines have returned over 190 previously grounded planes to service.

Boeing’s Business Segments

Boeing operates its business through four segments: Commercial Airplanes (BCA); Defense, Space & Security (BDS); Global Services (BGS): and Boeing Capital (BCC). The company provides a breakdown of revenue and earnings from operations for each of these segments. The pie chart for earnings from operations pictured above does not include segments that reported a loss for the period, such as Boeing's Commercial Airplanes segment. The company also includes an unallocated items, eliminations and other category, which reported revenue of -$38 million during the second quarter.

Commercial Airplanes (BCA)

Boeing's commercial airplane segment develops, produces, and markets commercial jet aircraft and provides fleet support services, primarily for the global airline industry. The segment supplies jetliners to meet global airlines' varying requirements for transporting passengers and cargo. In Q2 FY 2021, the segment's loss from operations narrowed to $472 million from $2.8 billion in the year-ago quarter. Revenue rose 268.3% to $6.0 billion, comprising about 35% of Boeing's total revenue. BCA is the segment responsible for producing the Max 737 and has been adversely impacted by the aircraft's grounding in March 2019.

Defense, Space and Security (BDS)

Boeing's BDS segment researches, develops, produces, and modifies military aircraft and weapons systems for strike, surveillance, and mobility. The segment also researches, develops, produces, and modifies strategic defense and intelligence systems, as well as satellite systems. The segment's top customer is the U.S. Department of Defense, which accounted for about 89% of its revenue in Q2 FY 2021. Earnings from operations rose 59.7% in Q2 FY 2021 to $958 million, comprising 63% of the total. Revenue grew 4.4% to $6.9 billion, comprising 40% of the total for all segments.

Global Services (BGS)

Boeing's global services segment offers services to its commercial and defense customers around the globe. The segment provides a wide range of platforms, systems, products, and services. These include supply chain and logistics management, engineering, maintenance and modifications, upgrades and conversions, spare parts, pilot and maintenance training systems and services, data analytics, and digital services. Earnings from operations were $531 million in Q2 FY 2021, a significant improvement from the $672 million loss from operations posted in the year-ago quarter. It accounted for nearly 35% of companywide earnings from operations. Revenue rose 16.6% to $4.1 billion, comprising nearly 24% of the total for all segments.

Boeing Capital (BCC)

Boeing Capital provides customers with financing to buy and take delivery of their orders, and manages the parent company's overall financing exposure. The segment's portfolio is comprised of equipment under operating leases, sales-type/finance leases, notes and other receivables, assets held for sale or re-lease, and investments. Earnings from operations were $36 million in Q2 FY 2021, a turnaround from the $7 million loss from operations posted in the year-ago quarter. Earnings from operations comprised about 2% of the total across all segments. Revenue rose 13.0% to $78 million, comprising a tiny share of Boeing's total revenue.

Boeing’s Recent Developments

On Sept. 17, 2021, Boeing announced that it plans to build a new manufacturing facility in Illinois to build the U.S. Navy's newest carrier-based aircraft. The 300,000 square-foot facility is scheduled to be completed in 2024.

Article Sources

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