Boeing announced its third quarter/nine month results today.
The full press release with the results may be found here.
Boeing’s 11-page PDF slide show that goes with the conference call may be found here.
The full earnings call transcript may be found here.
The call begins; key points:
- James McNerney, CEO: I want to be very clear; we worked very hard to avoid it, we want to solve it. We want an agreement that rewards a group of valuable employees and which protects out ability to compete. The linchpin remains management rights to respond to our business and market conditions, especially in today’s economic environment.
- McNerney: 5-10 deliveries for Boeing wide-body aircraft affected by supplier delays for galleys.
- McNeney: so far only two airplanes canceled, 80 deferred.
- McNerney: Despite strike, have achieved key milestones in 787 program, including assembly of fourth 787. We have used the strike period to better organize the work plan in the factory. Delivery schedule will be reassessed after strike is over; there will be a ramp-up period after strike concludes.
- McNerney: Boeing Capital is working with customers in tight credit market, but aircraft financing still available and we have no evidence that airplanes won’t be financed. We stand ready to help our customers if needed. We will do so when appropriate. 80% of our planes are ExIm Bank-eligible.
- James Bell, CFO: Revenues down in third quarter affected by strike and the galley-delayed deliveries. These accounted for 60 cents a share in the revenue loss. Boeing Commercial revenues were reduced by $600 million. (Editor: This equals $24 million a day in reduced revenue.)
- Bell: Costs for development of the 748-8F have increased. Engineering 95% complete.
- Bell: It is very likely BCC will do some financing in 2009. We will be very disciplined. We have backstop financing commitments of $9.5 billion, or 3% of BCA’s backlog for next decade. We’ve recently included additional terms and conditions to reduce BCC’s risk.
- Bell: All commercial and some defense programs affected by strike. It is important to note there will be a ramp-up period. All financial guidance suspended for duration of strike.
- McNerney: We will not sacrifice our ability to compete for short-term agreement with the strike.
- McNerney: cancellations and deferrals are pretty much in line with what we’ve seen in previous years and others are interested in icking up positions. Discussions are slightly more, but backlog is still in relatively strong parts of the world. We have steadily increased production rates in a measured way in last few years to meet demand without getting beyond our headlights. We’re feeling good about our production rates over next few years but we want to understand impact of strike before adjusting rates in the future. We don’t anticipate any white tails at all next year.
- McNerney: Impact on 787 remains day-for-day. The gating item is the assembly of the early airplanes in the factory, not supply chain. (McNerney would not answer whether first flight would occur in 2008 if strike ended tomorrow.)
- Bell: We’re not overly dependent on any one financing source (for BCC to help customers). We went through and reaffirmed commitments. Pricing may be different, but not out of line. We think ExIm will do 20% of financing over next six months. We have provisioned for BCC to participate for about $1 billion.
- Bell: BCC is heavily concentrated in 717s (Editor: financially ailing Midwest Airlines is a major customer; AirTran is the other major customer). BCC has been working to reduce exposure in this type.
- Bell: Making up strike-delayed deliveries in any short period of time is impossible.
- McNerney: We’re trying to learn from 787; in retrospect we bit off more than we can chew. There is a lot to learn from how we did that, good and bad. Hopefully you’ll see that in new programs. On 747-8 we’re not particularly proud on how that’s sorted out (on processes). Learning how to manage the 787 global supply chain with IT, design responsibility, visibility through IT and design, we did not have the kind of controls in management and IT are areas we have had to fix.
- Bell: Negotiations with 787 customers over delays, we’ve settled with some and have a better than expected settlement to serve the customers and to protect the corporation. By the time we deliver the first airplane, we’ll have a better view of zero margin (financial) on program.
- McNerney: We had [previously] informally slotted American positions, so this order doesn’t affect demand [and therefore won’t affect production rate].
- Bell: A lot of financial liquidity crisis should clear up by 2010.
- Bell: Would not definitively speculate how long the ramp up will take following the strike, but depending on the length of the strike, Bell hoped two months would see the production back to normal.
- McNerney: I think there is a way forward, a compromise, on management rights issue. I think there is a way to work with the union to meet some of their goals. I think both sides are approaching negotiations tomorrow with a constructive headset.
- Bell: The strike impact is 35 cents a share and the galley issue is 25 cents. (Editor: there are 740,250,000 shares outstanding.)
- McNerney: There have been some informal discussions with the IAM which indicated some constructive headset. [And] we look forward to successful discussions with SPEEA.
We’ll make a personal note: Boeing today confirmed what we reported previously: American’s 787 delivery positions were already figured into the production chain. We also note with satisfaction that Air Transport World reported October 21 what we’ve been reporting for months: that there are no new delivery positions available for the 787 until the end of the next decade. Here’s what ATW reported:
Last month ATWOnline revealed that two airlines were quoted 2020 as the earliest delivery date for a new 787 order (ATWOnline, Sept. 8). Boeing confirmed the timeline, stating that it “has said publicly that first availability for new orders of the 787 is around the end of the next decade.”
Note that ATW quotes Boeing as confirming this.
Let me understand this math. At Farnborough, Pat Shanahan stated the (realistic?) target for first flight was November. Strike began on Sept 6 and is now on day 47. If Boeing was estimating first flight at the beginning of November, it will take at least 55 more days from the end of the strike (24 days in Sept + 31 days in October) to get the plane ready for first flight. Boeing estimates at least a 1 for 1 day loss in progress. There are now 69 days left until the end of the year. If the strike were to end today, Boeing would theoretically be able ta achieve first flight by mid December. Remember that this assumes a beginning of November first flight. Hands up those that believe it wasn’t more towards the middle of November. This would mean pretty well a first flight next year.
Why does Boeing not openly admit this!?
Oh, I noteced that Jon Ostrower had made a similar observation about first flight.
But the question still remains, why does Boeing not openly admit this and why do the press and anylists not push them on this?
I sometimes feel that Boeing is living in some sort of Orwellian fantasy and many seem to be playing along.