Disappointed in Boeing’s Earnings? Be Glad It’s Not 1956

Wall Street was not thrilled with Boeing’s first-quarter earnings. The company reported a net profit of $1.3 billion on revenues of more than $22 billion and operating margins of more than 9%. But its free cash flow fell well below analyst expectations.

Luckily for CEO Jim McNerney, this is not 1956. Back then, Aviation Week published a two-page “editorial” by Boeing President William Allen lamenting the company’s paltry profits. The piece was adapted from remarks Allen had given to a congressional panel.

At the time, Boeing derived nearly all of its sales from U.S. government business, and that was the problem. In 1952, for example, Boeing made just $14 million in profit on more than $700 million in sales, a profit margin of less than two percent. “And then the Renegotiation Board comes along and says, ‘That is too much money,” complained Allen.

Allen certainly did not face the intense pressure that McNerney and other aerospace CEOs are under to return profits back to shareholders. He noted that the company needed higher profits to fulfill its responsibilities, “not money to pass to the stockholders.”

Boeing was already retaining a staggering 70% of profits “in order to put us in a position to do a better job.”  “If we had greater earnings, we could do a better job,” Allen said in 1956. “We would pour that money into laboratories, just like we are doing now with the 707.” 

Allen noted that the cancellation of the contracts at the end of World War II had left Boeing scrambling to find a way to retain the talent and know-how it had built up over 25 years. “We preserved that nucleus by going out and commencing the construction of 50 Stratocruisers, without any orders,” he said. “We sold them. We lost money on them. But it kept our organization, a small nucleus, employed” until military business picked back up with the outbreak of the Korean War. 

Today, Boeing is a thriving company that derives about two-thirds of its revenues from the robust commercial jetliner market. Annual sales, adjusted for inflation, are more than 15 times higher than in 1952 and could top $100 billion as early as next year.  It is a perch that Allen, who retired as president in 1968 and died in 1985, probably could not have dreamed of when we published his remarks. 

► Read the editorial in the March 5, 1956 issue of Aviation Week & Space Technology:

True Perspective on the Aircraft Industry

► Aviation Week is approaching its 100th anniversary in 2016. In a series of blogs, our editors highlight editorial content from the magazine's long and rich history, including viewpoints from the industry's most iconic names and stories that have helped change the shape of the industry.