From 2018 and onwards Boeing will be reducing the production of the Boeing 777 from 84 in 2017 to 66, down from the current 100 units annually in 2016. In terms of revenue a decrease of 16 units annually means a decrease in revenue of $2.08B. As for earnings, it is quite hard to estimate. Boeing cites higher costs as the main reason for this, but it is unknown how much of those costs it really has to absorb. So I will be using an estimate of 15.7% and 20% to estimate the loss in earnings. On a unit basis the loss in earnings is between $20.4 mln and $26 mln. So the total loss in earnings related to the cut will be between $326.4 mln and $416 mln for 2017.
Table 1: Impact of lower Boeing 777 production on revenue and profit
For the coming 3 years I expect production to be lower by 84 units compared to today’s production rate. According to my estimates this will lead to revenue being $10.9B lower and a negative impact of $1.7B-$2.2B on earnings.
Over a timeframe of 3 years the accumulates missed revenue due to the Boeing 777 production-rate cut of $10.9B is fully offset by a $18.5B gain from production increases on the 737 MAX program. Even the most conservative margin assumption of 15% will result in a net improvement of earnings of $600 million to $1B. Using the profit margin of 20% the net improvement is $1.5B to $2.0B.