Boeing reported a record-breaking 2018, with revenues of more than $100 billion and a spicy 11.9% profit margin.
It’s easy to explain why: They made a lot of commercial planes. To be exact, 806 planes—beating their biggest rival, Airbus, by six. Next year, the American aviation giant plans to make 900. That is even more planes!
What’s going right at Boeing
Boeing has other business lines—making military aircraft, making spacecraft, making loans to finance all these craft, and also servicing them—but commercial planes make up about 60% of both this year’s revenue and next year’s R&D spending, and the segment offers the highest profit margins.
Making a lot of planes is good business because, as Boeing chairman and CEO Dennis Muilenberg notes, “global passenger traffic continues to grow faster than GDP.” Here’s a chart from the Federal Aviation Administration tracking just the passengers on US-based carriers, just one of the markets where Boeing plays:
Boeing thinks the world will need 43,000 new planes in the next 20 years and it wants to build quite a few of them.
What could go wrong?
- The linkage between global travel and the global economy means that if things go bad for the economy, they’ll go bad for Boeing. Muilenberg reports that his high-level contacts in the US and Chinese governments see progress on trade talks, which matters—some 7,700 of those 43,000 future planes are expected to be built for Chinese customers. “China needs the airplanes for growth, to fuel their economy…and here in the US our aerospace business is a tremendous US jobs generator,” he argues.
- The biggest-selling Boeing plane is the 737—580 were delivered last year!—but the latest version was involved in the deadly Lion Air crash in Indonesia last year. Investigators are still examining data from the accident (the US government shutdown delayed the participation of investigators from the National Transportation Safety Board) and there are open questions about whether airspeed sensors used on the plane or software designed to help pilots fly it played a role. Potential re-designs or modifications to the fleet may cost the jet-maker down the line. Investigators also are looking at potential maintenance problems and pilot errors to understand what happened.