United’s 787s delayed, but nobody is saying why

There appears to be a lot of focus on delays in delivering the next Boeing 787s to United Airlines–which has received one–but neither Boeing or United is saying what’s behind the delays. (Update, Dec. 1: one of the three was delivered yesterday.)

According to the Ascend data base, line numbers 45, 50 and 52 are supposed to be delivered this year and 55 and 77 are supposed to be delivered in January. All are with GEnx engines.

Here are some possible reasons for the delay:

  • Rework is the obvious one. The first “clean” airplane to come off the Boeing assembly line in Everett was around line #66. The lower the line number, the more rework. UAL’s line numbers are higher, but rework is still necessary.
  • GEnx engines. The failures on the 787 and 747-8 GEnx engines were unrelated and, as these things go, not especially severe, but fixing them is, we are told, complex for engines already assembled. Qatar refused delivery of its first 787 because of the GEnx issue. Contractually delivery has been accepted but the airline also wanted additional IFE (inflight entertainment equipment) installed and physically hasn’t accepted delivery. So…
  • IFE upgrades: These UAL 787s were ordered by Continental Airlines prior to the merger and it’s been reported in the press that the delays in Boeing’s delivery left UA/CO will older, less sophisticated Buyer Furnished Equipment (the IFE). Maybe UAL wants more current IFE?

We were asked by media if this is another blow to the 787 program. We don’t think so. At this point, we haven’t heard of anything about the reason for the delay and pretty well shrugged it off anyway.

Meanwhile, Airbus is in talks with at least some of its A380 customers seeking compensation for the operational interruptions resulting from required inspections related to wing rub brace cracking. Compensation could amount to millions of Euros per customer.

KC-30 performing well for Australia; Boeing C17, Lockheed C130, Alenia C27J

The Airbus KC-30 is performing well, according to this article. Here is a PDF of the report referenced in the article: Airbus Tanker Proves Its Worth

The same writer prepared this piece on transport aircraft, including the Boeing C17, Lockheed C130 and Alenia C27J (purchased and subsequently rejected by the US DOD).

Odds and Ends: Airbus and Boeing BBJs; Oops by Sen. Cantwell; positive SPEEA talks

MAX BBJs: Boeing is offering 737-8/9 MAX BBJs but not, as yet, a 7 MAX BBJ. Boeing says it is still studying a 7 MAX BBJ. there have so far been no orders for the 7 MAX.

Airbus ACJ A318: Airbus says it’s offering an enhanced A318 Airbus Corporate Jet. Improvements are mainly to the interior, though the press release says, “These include Sharklets on the wingtips, which make the aircraft look nicer….” The Boeing and Airbus announcements were at the NBAA trade show.

Oops by Cantwell: Sen. Maria Cantwell (D-WA) is running for reelection. One of her TV ads is called The Hub, in which she promotes Washington State as the Hub for aerospace and her work in Congress on behalf of Boeing.

Only there was a big Oops in the first version: it opened with stock footage of US Airways Airbus A320s. Not only were these not Boeing airplanes, US Airways hasn’t ordered a Boeing since Steve Wolf was CEO–nor has America West, now combined with US Airways, ordered a Boeing aircraft since the 757.

The ad ran for some time on KING 5 (NBC-Seattle) until it was scrubbed and replaced with opening stock footage of a Boeing 767.

All YouTube videos containing the Airbuses have been “removed by the user.” Here is the revised ad.

Someone in Cantwell’s campaign really muffed this one.

Positive SPEEA talks: Last Friday, Boeing and SPEEA each released statements indicating negotiations have taken a positive turn. The Seattle Times sums it up here.

Boeing wants to outsource more work to Mexico; updated MAX v NEO orders

Boeing outsourcing: In an election where outsourcing is a major political campaign issue, The Seattle Times reports Boeing wants to outsource more work to Mexico. Here is Boeing’s letter, via The Times.

MAX v NEO: Here is an excellent set of tables updating the orders between the 737 MAX and the A320 NEO. According to the analysis, Airbus right now has a 63% market share for the airframe. On the NEO, where two engines are offered, CFM has a 41% share vs PW’s 39% share with the remainder undecided.

Odds and Ends: Airbus–60% of single aisle market; 777X customer meeting and EIS; advancing A350-1000

Airbus Market Share: Airbus figures it will keep around a 60% market share for single-aisles, according to this Reuters story. Boeing is going to beat Airbus handily for sales this year with the conversion of hundreds of MAX commitments to firm orders, but Airbus’ runaway success with the NEO program is a tough hill to climb for Boeing. A more telling market share story will likely come next year, after the orgy of sales is over for both companies and market stability returns.

777X Customer Meeting and EIS: With all the talk about what Boeing is planning with the 777X, there is a customer meeting in Seattle next week (a routine event) to talk about the aircraft, several who are planning to attend tell us. The 777X came up during the Boeing earnings call yesterday and Boeing CEO Jim McNerney said this about EIS: “Well, we are looking at the end of the decade [or] the beginning of the next decade…. [Emphasis added.] Our customers would like it sooner…. We have a robust dialogue going out with our customers right now to make sure we get it right.”

Note the comment about the beginning of “next decade.” Up until now, Boeing has been saying consistently that EIS would be the “end of this decade.” We’ve been hearing from our sources that EIS might slip to the beginning of the next decade, but as far as we can tell, this is the first public acknowledgement.

Airbus this week said it might advance EIS of the A350-1000 from 2017. If Airbus could achieve this, and if Boeing were to slip EIS of the 777X from 2019 to early next decade, Airbus could have an advantage with the 1000. Even if Boeing stuck with 2019, an advance by Airbus would give it a two or more year advantage (similar timing of the NEO vs MAX).

The sport game continues.

Boeing’s 3Q strong; initial analyst takes; transcript link

Boeing announced strong results for 3Q2012. The press release may be found here.The transcript from the earnings call is here.

The initial analyst take is below. Note the pension comments in JP Morgan; this helps explain why Boeing wants to shift new hires to a 401(k) program from a Defined Pension Plan.

Bernstein Research

Boeing reported a very strong Q3, particularly related to its outlook for the year. For the year, the company has raised guidance for defense revenues, defense margins, and operating cash flow. We see cash generation as a particularly important area of focus for Boeing. Although Boeing Commercial Airplanes guidance was unchanged, we will be looking for more insight on progress on the 787 during the earnings call – we see the 787 as central to the long term performance story. High margins in defense are consistent with our view of strong margins across the defense sector as companies (including Boeing) focus on cost reduction.

Boeing reported Q3:2012 EPS of $1.35, above consensus of $1.13 and our expectations of $1.03. Boeing attributed the EPS beat to “strong core operating performance”. Boeing raised 2012 EPS guidance by $0.35-$0.40; to $4.80-4.95, up from $4.40-$4.60. The size of the EPS guidance increase is encouraging because it suggests even better performance in Q4.

Sales for the quarter were $20.0bn, in line with consensus of $20.0bn and our expectations of $20.1bn. Boeing raised sales guidance for the year up $500M-$1bn, to $80.5-$82bn from $79.5-$81.5bn on expectations of higher Boeing defense sales.

Goldman Sachs

Boeing reported 3Q12 EPS ahead of its consensus, raised its 2012 EPS guidance to a range above consensus, and generated strong orders and cash flow in the quarter.

3Q12 reported EPS of $1.35 compares to consensus of $1.12 and GS at $1.15. The tax rate was 550 bps below our estimate, which added roughly $0.10. Boeing’s reported segment operating profit is 8% above our estimate which was above consensus.

Total revenue of $20.0bn was 1% below our $20.2bn estimate, as Boeing Commercial grew 28% and Boeing Defense declined 4%. But total EBIT margin of 7.8% was 70 bps ahead, with Commercial 20 bps better and Defense 150 bps better.

Free cash flow in the quarter was $1.18bn, implying FCF/NI of 1.14X. It is up from $564mn qop and $104mn yoy.

Total company backlog increased sequentially to $377.6bn from $373.8bn. BCA book-to-bill was 1.41X, while BDS was 0.76X.

Boeing raised its full-year 2012 EPS guidance to $4.80-4.95 (ahead of consensus of $4.72) from $4.40-4.60. Even when adding the $0.10 tax benefit in the quarter to consensus, the mid-point of the new range is still above the Street’s prior expectations. Boeing raised its revenue guidance to $80.5-82.0bn from $79.5-81.5bn. It reiterated its BCA margin guidance, but raised its BDS margin guidance by 25 bps. Operating cash flow guidance was raised to >$5.5bn from >$5.0bn. The 2012 787 + 747-8 unit forecast of 70-85 was reiterated.

JP Morgan

Boeing put up a solid quarter with a big headline beat and higher guidance, but the pension expense outlook is even worse than we had expected. Defense margin drove the operational beat and a lower than expected tax rate contributed as well. Boeing delivered the preliminary 2012 pension guidance we had expected, and it is a whopper. Pension expense is expected to be up by $1 bn, about half of which is driven by previously inventoried expense. We had anticipated that the inventoried pension could provide incremental headwind, but not by nearly this much. The difference between this and our current 2013 estimate could be worth another 55 cents of EPS. We anticipate that management will offset some of this with some combination of share buybacks and pension contributions, but we believe that full capital deployment plans will not be discussed until at least December; so, GAAP EPS estimates for 2013 are likely to drop in the coming days.

EPS of $1.35 exceeded our estimate by 24 cents and consensus by 23 cents Relative to our estimate, EBIT accounted for 14 cents of upside, with defense margins comprising nearly all of it. Tax contributed another 9 cents. Management raised 2012 EPS guidance from $4.40-4.60 to $4.80-4.95

BCA EBIT of $1,153 mn was 4% ahead of our estimate on margin strength. We estimate the core operating margin (ex R&D and the low margin 787 and 747-8 programs) was 17.3%, in line with our 17.2% estimate. We had had some concern that a 737 block extension during the quarter could provide some pressure, but this did not materialize. R&D was also modestly lower than expected, contributing to the overall 30 bps margin beat. BCA margin guidance remained ~9.0% despite the 9.9% YTD level. Q4 period costs could provide some headwind, but we believe there is plenty of conservatism in this guidance.

UBS

Q3 at $1.35 included $0.10 from lower tax rate: Q3 EPS at $1.35 including $0.10 benefit from lower 29% tax rate. Upside relative to our model came from BDSS (Defense) as BCAG (Commercial Airplanes) came through overall in line with our expectations. BCA margins at 9.5% with pre R&D at 13.8% diluted by higher 747-8/787 deliveries. We estimate pre R&D margins ex 747-8/787 at 17%, in line with Q2. BDSS revenues down 4% vs our -8% while 10.5% margins were 100bps better than our model. FCF at $1.2B or 113% of net income dragged down on $1.8B inventory build and $750M pension contribution.

787 cash costs improved by ~$15M per unit: 787 deferred production grew by $1.1B, slightly below prior quarter on similar production. While we need further details for precise calculation, we estimate deferred production per unit improved by $15M relative to Q2. BCAG reported a $1B unit accounting loss reflective of 747-8 and 787 losses, much higher than $144M in Q2 on seven additional 747-8 and 787 deliveries.

Boeing starts 777 build at 8.3/mo rate

777 Build Rate: Even as Airbus opened its A350 Final Assembly Line in Toulouse today, Boeing announced it has now gone to rate 8.3/mo on the rival 777. (One must wonder if the timing of the announcement is coincidence….) Here is Boeing’s press release.

Randy Tinseth, in his blog, writes this, with some photos.

Airbus A350: Aviation Week has this story from today’s FAL opening, reporting the company is trying to reassure stakeholders that the program is on track.

 

A350 FAL opens today; 787-10 v A350-900; movement on A350-1000

The Final Assembly Line of the Airbus A350 opens tomorrow and there are several stories of note coinciding with this event:

High Stakes for Getting New Jet to Market

Airbus May Hike A350-1000 output

Launch of 787-10 has Implications for 777X. Includes commentary about the A350.

A350 Wing Production on Track After Fix

Separately, in other news:

Bombardier CSeries program update

Compressed schedule likely means CSeries delay

Boeing earnings preview (released on Wednesday)

 

 

 

 

TSA move to replace body invaders a good one

The news that the Transportation Security Administration is swapping out the invasive body x-ray scanners with other equipment is good news indeed.

Setting aside the debate over whether the levels of radiation to produce x-rays is a health risk, the images created were truly invasive to personal privacy. We went out of our way to look for TSA lines where only magnomitors were in use in order to avoid the x-ray body invaders and as often as not requested a pat down if only the body invader was in use.

Europe has long used machines that produce stick figures of the person going through the machine, and little round dots to highlight areas that required pat downs. We had no issue with these machines.

The stick figure machines will reduce the number of invasive pat downs as well. Hopefully this will speed the entire security process.

And another:

Odds and Ends: Germans withhold Loans on A350; CSeries; SPEEA update

A350 Loans: The German government is withholding repayable loans (aka launch aid) for the Airbus A350 in another one of its regular snits over work share. Airbus ought to forget these loans and either self-fund or go to the commercial markets. The German government scuppered the merger with BAE Systems. Forgetting government loans would give Airbus more freedom to do what it wants with less government interference. It would also get the US off its back.

Speaking of Corporate Welfare: Read this article about Boeing, others and Oklahoma.

CSeries: AirInsight has a 13 minute podcast with the head of the CSeries program, talking about the assembly of Flight Test Vehicle (FTV) 1 and the program’s status.

SPEEA Update: The engineers union at Boeing seems to be gearing up for a strike, according to this article.

Speaking of Unions: The IAM is back at Boeing’s Charleston plant with a union drive.