Boeing reported its best ever annual revenue for 2018 on Wednesday as it crossed the $100 billion mark for the first time, beating Wall Street’s expectations and sending the company’s stock soaring.
Boeing’s banner year was driven by demand for its commercial jetliners, with its 737 MAX and 787 Dreamliner drawing new interest from international customers. The company’s new 737 MAX 8 commercial jet has been embraced by customers despite a devastating crash in Indonesia that killed 189 people.
And the company’s Arlington-based defense business rallied under the new leadership of Executive Vice President Leanne Caret, notching a string of multibillion-dollar weapons deals.
“2018 was a year of strong performance and record results on many different fronts, operationally and financially: a demonstration of how our team remains focused on further driving both growth and productivity,” Boeing chief executive Dennis Muilenburg told investors.
The company’s stock price was up 6.8 percent by early afternoon after leading a broader market reality throughout the morning.
The positive results come as the company is trying to better integrate its three major business units ― commercial jetliners, defense and space, and a new “global services” segment focused on aircraft maintenance ― under a strategy it is calling “One Boeing.”
“This is really a star of all three business segments really performing,” Muilenburg said Wednesday in an interview on CNBC.
In July 2017, the company stood up its global services business unit serving the commercial and defense sectors, hoping to corner the tremendous maintenance costs that airlines and military agencies must shoulder to keep old planes flight-worthy. That business unit brought in about $17 billion in 2018, its first full year as a stand-alone business segment. It broadened its reach in that industry when it completed a $4.25 billion acquisition of an aircraft parts supplier, KLX.
International orders for Boeing’s commercial jets soared, with the company delivering a record 806 planes in 2018, compared with 763 the previous year, driving the company’s commercial jet business to operating margins of 15.6 percent. The company predicted similar growth in 2019, as it sits on a delivery backlog of nearly 5,900 airplanes, valued at $412 billion.
The company’s airline customers did not seem fazed by an October crash of a brand new Boeing 737 MAX 8 that killed 189 people off the coast of Indonesia. Boeing faces a wave of lawsuits from family members of those killed over whether a change to the company’s autopilot system caused pilots to lose control of the plane.
Boeing also made progress toward finalizing a high-stakes merger with Brazil’s Embraer aerospace company, an important player in the market for narrow-body commercial jetliners. The government there has already approved the merger, which awaits a shareholder vote. Completing the acquisition would better position Boeing to compete with its European rival Airbus, which forged a similar partnership with the Canadian manufacturer Bombardier in 2017.
And 2018 was widely seen as a breakout year for Boeing’s Arlington-based defense business.
That business segment saw its annual revenue increase by 12 percent over the previous year, to about $23 billion. The company recently delivered its first two KC-46 Tankers to the U.S. Air Force, a significant milestone for a long-troubled military program that has saddled Boeing with billions of dollars in excess costs.
Of even greater significance for Boeing’s defense prospects is a series of unexpected wins against Lockheed Martin, its closest rival.
In late August, the company was awarded an $805 million contract to develop the MQ-25A unmanned aerial refueling drone, beating out Lockheed Martin and General Atomics for a contract to develop and build the first four of the unmanned aircraft. The MQ-25 is expected to eventually balloon into a $7 billion opportunity as the Navy looks to rely more heavily on autonomous aircraft.
In early September, the company was awarded the first phase of a $2.38 billion contract to replace the Air Force’s fleet of UH-1N Huey helicopters, which protect U.S. nuclear assets. And in late September, it became the primary supplier of the Air Force’s combat training planes, winning an initial $9.2 billion contract for that work.
It followed a strategy of submitting relatively low bids under the expectation that those footholds will yield financial benefits for decades as the Pentagon pays it to churn out new planes and service older ones.
The company projected similar results for 2019. Executives admitted, however, that their ability to follow through could depend on how they are able to weather an increasingly contentious global trade environment.
The company estimates there will be global airplane demand for about 43,000 new airplanes over the next two decades, 7,700 of which are expected to come from China’s growing commercial airline market.
The ongoing trade negotiations between the Chinese government and the Trump administration could weigh heavily on whether Boeing becomes the dominant player in that market, cedes ground to Airbus or watches a new Chinese rival emerge on the global stage.
“We expect China to be a long-term growth market for us, but exactly how that proceeds over the next quarter is still an open question as we proceed with trade discussions,” Muilenburg said. “China needs the airplanes for growth to fuel their economy . . . and here in the U.S. our aerospace industry is a tremendous U.S. jobs generator."