Leeham News and Analysis
There's more to real news than a news release.
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
Boeing 2Q earnings call recap
Here are highlights from today’s Boeing’s second quarter earnings call.
Jim McNerney (JM), CEO
Greg Smith (GS), CFO
JM:
- We are working closely with UK investigators on Ethiopian Airlines 787 ELT fire. In anticipation of planned action by regulatory authorities, we have provided guidance to airlines to inspect, fix or remove the ELTs. We remain highly confident in the future of the 787 and integrity of the airplane.
- Traffic trends improving. We see continued pressure in cargo market but pleased with recent 747-8F activity.
- Launch of 787-10 is great move, with five key customers. Launch of 777X coming soon, with EIS around the end of the decade. 737 MAX performance exceeds competition. We are positioned to match production with additional demand. (Translation: MAX this is a McNerney hint that 737 production rate increases are coming.)
- Began assembly on first KC-46 tanker.
GS:
- Launch of 787-10 did not change accounting block in the second quarter but it will later in the year when orders firmed up. (Editor’s Note: Accounting block is 1,100, Readers may recall.)
JM:
- Priorities going forward remain clear: Profitable ramp up of production programs, strengthening and repositioning defense business, providing increasing value to customers and shareholders.
Q&A
- JM: There is pressure to for more 787-9s and -10s. We’ll make the call of going beyond 10 once we’ve settled in on 10. If I were a betting man, I would bet market pressure will go beyond 10.
Note: In June we had a graphic about production rate increases for the 737 and 787 (and the 767). See it here.
- JM: Achieving 50% market share for 737 MAX–the answer is pretty straight-forward. Airbus introduced NEO about 1.5 years before we did. We at about same pace for customer penetration. They are producing at same rate and we’re ready to go forward with higher rate, moving deliveries to the left. I’d be very surprised if we’d be much off 50-50. We will have higher market share in wide bodies, where we’ve got five relatively new offerings to their three when they get A350 variants introduced. I feel very bullish on widebodies. I don’t want to give a market share prediction. (But will be higher than 50-50.)
- JM to suppliers: We are determined and committed to reduce costs. We face sequestration. There are aggressive competitors. We need to be out front of these trends and for our suppliers who work with us aggressively, their business can grow disproportionately. We are in only the second inning.
- JM: Rate 10 on 787–end of the year.
- JM: Is 747 program sustainable? We do see it as a viable program. As cargo market normalizes over next year or two we should see more orders. The point is how well we are doing in the cargo downturn.
- JM: It’s too early to say where the 777X wing will be built. Will decide 2-6 months after program launch.
- GS: Employment count in Seattle declined as 787 issues cleaned up and productivity improves.
- JM: Re: 787 LHR fire. We’re in discussions with Ethiopian how to fix the 787 (ie, who pays). We obviously will honor warranties and each of us has insurance. Typically we do repairs for new airplanes but over time others will. In this case Ethiopian will rely on us on how to handle repair.
- JM: in response to John Leahy saying 787 is unreliable and rushed to market: I think even John felt that he got carried away with himself, which can happen, but you’d have to ask him. Reliability is about the same as new models.
- JM: On whether 737 can achieve 50-50 without a price war: We’re getting reasonable pricing. I don’t see pricing that destroys or significantly impairs our economics.
- GS: 787 program is profitable today. (Editor’s Note: This is based on program accounting methods.)
“737 MAX performance exceeds competition”
How can we take seriously what McNerny says when he uses such phrases. Neither the MAX nor the competition (NEO) is flying, so what performance is he talking about? Program performance maybe?
He is obviously not refeering to the market performance of the MAX vs. the NEO.
Economics such as seat mile cost, on paper currently.
“JM: in response to John Leahy saying 787 is unreliable and rushed to market: I think even John felt that he got carried away with himself, which can happen, but you’d have to ask him. Reliability is about the same as new models.”
Twisting words again..
“It’s pretty obvious that this airplane is not reliable and does not have mature systems,” ‘What they’ve got is an architecture that is not mature and that will eventually become mature. It’s going to take a lot of time, a lot of money, a lot of cancelled flights. And maybe redesign quite a few systems onboard,’
http://www.industryweek.com/transportation/airbus-exec-says-dreamliner-not-reliable
Anyway this was the 2Q Earnings Call. Always upbeat. JM’s salary depends directly on market perception. Tell them what they want to hear without legally lying. Telling half truths and leaving out perspective isn’t forbidden.
Are you really concerning yourself with one marketing guy twisting the words of a competitor marketing guy? They are both in the business of twisting words, or haven’t you noticed.
“Tell them what they want to hear without legally lying. Telling half truths and leaving out perspective isn’t forbidden.”
This goes both ways and John Leahy has got this down pat in my opinion, as is clear from the quote you posted.
For me, a crucial point in the question of sales of the Max v those of the Neo is not so much the number of frames sold, but the number of customers for each type: 44 for the Neo v 28 for the Max, again a 60/40 split. The suggstion that parity can be reached by upping the production rate seems to ignore the probability that Airbus would undoubtedly do the same!
Given that Boeings market has been in constant decline over the last twenty years, it’s hardly likely that anyone sitting around the Boeing board room table is going to acknowledge this fact, but the evidence is there for all to see
EADS/Airbus call them/us what you will do not share Boeings production fluctuations or the apparent slide into obscurity, but record constant production growth & market share.
The true litmus test will be taking the next 10% from Boeing, a hard battle indeed as it will be production availability based & not quality.
Oh yeah. These record production figures definitely betoken a company in inexorable decline (eyeroll).
I assume the accounting block would increase from 1,100 with the introduction of the -10?
Isn’t the accounting block determined by the development costs and not the number of orders or sales? If so, how does the firming up of orders change that? Am I misunderstanding the term accounting block? Isn’t that the number of units they need to sell before the overall program becomes profitable?
As far as I can tell, you are not misunderstanding the term. Firming up the orders would give Boeing a more definite feel for the price they will get. They will need a good sales price figure to accurately forecast break even and the accounting block.
A new version does not come without additional development costs. That is why the accounting block has to be increased. The sales prospects however are improved by offering customers a wider choice,
John Leahy :“It’s pretty obvious that this airplane is not reliable and does not have mature systems,” ‘What they’ve got is an architecture that is not mature and that will eventually become mature…..”
This confirms what I have been saying all along. Boeing lead with technological inovations, aibus waits for the technology to maturea and then copies. Just see how long it has taken airbus to put winglets on their aircrafts, then they make a lot of noise about inovation.
This is again the reason why aibus never wanted to do a all new small airplane, they went neo while boeing was proposing NSA, they wait for boeing to start and then they will copy.
The A300 ig twin, A320FBW, A330/340 family concept, A380 Megaliner, A400 44k shp M.7 prop were copies of what? BS le bon vivant.
In a way Le Bont Vivant is correct.
Boeing forged ahead on too thin ice ( and got their feet significantly wet in the process).
It does not make all that much sense to employ technologies that are not mature yet.
Maturity often can not be forced by lots of money but by the “right” amount of money _and_ some time for ripening.
New technologies come with a learning curve. Lessons painfully learned in the early A320 days through loss of hulls and lifes illustrate that pretty clearly. So I think it is a sound strategy to introduce new technologies only after they have matured. I don’t want to fly in a plane that incoporates groundbraking but unmature technologies.
Beside that I think both manufacturers have done their fair share of reusing existing technology investments. When did Boing introduce their last real innovation before the 787?
Yes, yes, we have all read this from you …yawwwwwwn… many times before.
Why are you trying to start a falme war?
Is this pertinent to the issue at hand?
You should perhaps try to live up to your moniker a bit more.
Scott is right that it is high time for Washington state to look beyond Boeing. Globalization cuts both ways. And Boeing brass better believe that their employees in Puget Sound harbor little loyalty to a corporate machine that obviously treats them as commodity. I’m sure if Airbus sent out 1000 engineering positions open nearby, they’d get 3000 Boeing engineering guys apply, in addition to college grads. Note to Boeing bigwigs: labor cost is only one piece of the puzzle. Airbus is eating your lunch (narrow bodies), and they’re hungry for your dinner and look set to eat it (wide bodies), and if you treat your employees like dirt, expect no better in return.
Whatever happens there is always a strong incentive to boast Boeing stock, seemingly detached from operational realities. I was surprised by this, a few years ago.. After looking at a few dozen quarter earnings calls I saw they are all basically the same & everybody wants it that way.Boeing, the stock holders, reporters, bigger public, politicians, customers, executives, all have a strong interest of everything going fine and becoming better in the future. So that’s the news selection they get. Everybody happy!
http://www.fool.com/investing/general/2013/07/28/despite-a-few-loose-wires-boeings-a-bargain.aspx