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Boeing 737 Max Suspension: What Really Happened? – MishTalk

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Three days ago I noted Boeing Will Suspend 737 Max Production: Thousands of Jobs at Risk.

On the surface the story does not seem to add up.

There were only a few hundred cancellations. And the backlog is over 4,500. To top it off, Boeing insists the 737 certification is on schedule.

Boeing 737 Max Order Backlog and Deliveries

Boeing makes at most 50 planes a month. In December it was down to 42. Thus, there is over a year’s worth of backlogs.

Lead Times

The lead times on orders at Boeing and Airbus stretch out for for years. It’s not as if an airline can cancel a Max and pick up the phone and get an Airbus a month later.

What’s Going On?

Several industry insiders and analysts privately emailed me in response to the article.

It a combination of new certification rules and a shortage of skilled workers on top of storage issues and foreign uncertainty.

1: Shortage of Skilled Labour

The Seattle labor market, especially for aircraft skills, is very tight. The skills needed to fix and deliver the 400 already stored aircraft is not there.

This work requires special FAA licences. Boeing just hired over 200 mechanics and has called back retirees.

What is unusual is that they did so in early December before a 2 week paid holiday. Typically Boeing hires in January. We have not seen December hiring like this this in 50 years. Thus, Boeing is locking down skilled labor.

Boeing’s production worker demographics is such that there is a very high number of older workers who could retire anytime.

2: FAA Certification Delayed

Boeing expected FAA certification of the fix in December. It now looks like April.

3: Individual Certification

The FAA announced it will certify each plane individually.

This takes a huge amount of time compared to mass certification of whatever fix the FAA ultimately accepts. Prior to the crashes, Boeing self-certified and the FAA blessed the process.

4: Storage Issues

Most of the new planes are at Plaine Field, Renton airport, Boeing Field and Moses Lake, WA. All are Boeing facilities. The key is to have aircraft stored as close as possible to Boeing facilities because that is where the skilled labor is. They could store the aircraft in Arizona and elsewhere, but remote storage is already an issue.

Besides the 400 aircraft produced since the crash, there are about 380 MAX aircraft owned by various airlines and stored all over the world. Those aircraft will be fixed on location. Boeing will send mechanics to each remote location when Boeing is already short of skilled labor.

5: Europe

Trump is in a huge tariff dispute with the EU. The WTO ruled against Airbus, but in a separate ruling the WTO is expected to rule against Boeing.

The EU will be in no rush to certify planes if and when the FAA does. And the EU will no longer accept Boeing’s or the FAA certification process. This adds to the uncertainty and the delays.

Ripple Through Impact

The Wall Street Journal reports GE’s 737 MAX Problem Just Got Bigger.

General Electric Co. will likely take a significant hit to its cash flow from Boeing Co. decision to halt production of the 737 MAX jetliner, which has already dented the conglomerate’s finances.

GE makes all of the MAX’s engines through a joint venture with France’s Safran SA . When Boeing in April cut monthly production of the plane to 42 from 52, it reduced GE’s quarterly cash flow by $400 million. The suspension of production Boeing announced Monday, if prolonged, could reduce cash flow by much more as analysts warn that GE won’t receive payments made as the planes are being built.

“It is going to create a significant cash drag for GE,” said John Inch, an analyst at Gordon Haskett. He added, though, that “one engine program cannot make or break the fortunes of this company.”

Southwest Airlines Co. earlier Tuesday said it was removing the 737 MAX from its flight schedule through April 13 as the airline sees uncertainty around the timing of the aircraft’s return to service.

The extended grounding has already strained GE finances, cutting cash flow by as much as $1.4 billion this year as factories produce fewer engines and GE can’t get fully paid for them. The LEAP engine is a major growth driver for the company’s aviation unit, which accounted for $4.8 billion of GE’s roughly $7 billion in industrial profits in the first nine months of 2019. GE has more than 17,000 orders for the engine.

That engine is also used on the Airbus . That is one heck of a lot of orders.

Industrial Production Rebounds after GM Strike Ends

On December 17, I commented Industrial Production Rebounds after GM Strike Ends

Looking Ahead

The current rebound is artificial, but so is the strike that preceded it. Looking ahead, Boeing is going to have a significant impact in the first quarter.

Thousands of jobs and possibly as much as 1/3 of a point of GDP as Boeing Will Suspend 737 Max Production in January.

Mike “Mish” Shedlock

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

The Canadian Press. All rights reserved.

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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