Boeing speaks to Morgan Stanley

The Boeing Chief Financial Officer spoke to the Morgan Stanley conference September 10. James Bell is the presenter. Highlights as the presentation proceeds:

(Unless there are quotation marks indicating a direct quote, Bell’s comments are paraphrased as we took notes in real time during the presentation.)

  • Bell reiterates Boeing’s best offer to the IAM.
  • He is concerned about the cancellation of the tanker competition but Boeing needs time to prepare proper bid.
  • Outsourcing is major concern with the IAM strike. “We are in sort of a cooling off period,” he said. “We’ve always had language in the contract that gives them the opportunity to bid for work. We need to make sure we have process in place” to outsource work, support our marketing efforts. A lot of the backlog we have for orders is supported by the ability to share the work in other countries.
  • Backlog remains solid because traffic remains essentially strong. “We are really feeling comfortable” due to diversity in backlog around the world. “We have looked at it, we’ve seen it,” and have not had more than normal kind of deferrals and cancellations. “That doesn’t mean we’re not concerned about it, or looking at it,” but right now 80% of our backlog is ExIm financable.” Only 3% of our backlog has been financed by Boeing.
  • Question: What are the sticking points, are you at an impasse. Bell: We are not at a complete impasse. They want all the work done there, which isn’t practical, and we want flexibility and we’ll come in between. But that’s not the only issue we’re apart on. We are going to retain our ability to be competitive.
  • How long for the strike before delivery of 787 slips to 2010? Bell: doesn’t give a timeline. (Later says one-for-one for every day there is a strike.)
  • Delay on the 787: Bell says we are not overly concerned about growth in costs vs escalation costs in contracts, but will have to negotiate with customers on payments that might cover the costs. Productivity efficiencies will be important to keep costs down. Initial deliveries (undefined) will be at zero profit (doesn’t quantify what a loss per plane might be).
  • We have a pretty good model for 1,000 planes about what the pricing ought to be and we have a pretty good idea what the costs will be for costs and we’re getting a pretty good idea what the penalties will be, and [all-in] I’m not going to tell you what that will be. There is significant profit to accommodate all the costs.
  • My basic understanding on tanker is that the DOD has canceled the contract and there will be a new RFP issued. We may offer the same airplane or something new depending on what the requirements are.
  • Right now there is a one-for-one (day-for-day) slip on the 787 and all other programs due to the strike.
  • Boeing’s IDS defense division is avoiding bidding on fixed price contracts going forward.
  • We have been preparing for the possibility that we will have to help our (US) domestic customers (for financing) but the reality is we haven’t had to. There is enough liquidity in the market. Customers are able to get better deals out of the market than Boeing’s backstop financing.
  • The A350-1000 challenge to the 777: We will respond when we know what it is. A350 looks good on paper and we have the resources to invest the R&D necessary to respond [with a refresh or a new airplane]. We’re not going to jump out in front of it until it gets finalized.
  • 737 replacement: We’re looking at the end of the next decade, and the key is to have technology to get improvements. Composites don’t scale down as well as they scale up. It could be a small twin-aisle. Engine technology needed. I don’t think the CSeries will change dynamics that materially, engine technology could, but issue is reliability. We’re all excited by the Geared Turbo Fan but question is whether it will have reliability to give advances required for a new airplane.
  • DOD has actually canceled this procurement and this means an entirely new RFP. This is an important distinction from merely postponing the competition from the Bush Administration to the next Administration.
  • Bell predicts the strike will last at least a month.

1 Comments on “Boeing speaks to Morgan Stanley

  1. Pingback: Tanker canceled: WSJ « Leeham News and Comment

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