Earnings preview at Boeing

Note: It’s been a heavy travel year already for us and we are off again through July 24. We won’t be posting during this period. Any Comments submitted by people who haven’t previously posted will be delayed in posting until our return.

Boeing’s earnings call for 2Q09 is July 22. Since we will be traveling and won’t be providing our usual running reporting of the call and our concurrent take, we thought we would highlight a few things we think should be asked about by aerospace analysts and reporters.

787 Status

  • Progress in fixing the wing-to-body join that delayed the first flight;
  • New schedule to first flight, certification and first delivery;
  • Number of affected airplanes; (Boeing told us fewer than 40; reconfirmation);
  • Is the fix described on the conference call indeed the fix that will work? Further design study and validation was required, it was said on the call.
  • When will a decision be made on Line 2? (Seattle papers report a decision will be made in the fall.)
  • Is a no-strike clause with the IAM conditional on placing Line 2 in Everett (Seattle), as Washington Members of Congress quote Boeing executives (specifically McNerney) as saying?
  • Will Boeing accept an arbitration clause in return for a no-strike pledge?
  • What further economic incentives are important to Boeing?
  • What cities are under consideration for Line 2? Reports indicate Everette, Charleston, San Antonio and a fourth city, perhaps Long Beach?
  • Once a decision is made, how long will it take to make Line 2 operational, at Everett? at Charleston? at San Antonio? at Long Beach?

Financial Questions

  • What is the “block” for 787 cost allocation? That is, the 747 program has a “block” beyond which losses must be recorded (so far, $1bn, excluding any additional write-offs in 2Q09). The 787, like all Boeing aircraft programs, uses Program Accounting. Has a “block” been identified beyond which cost overruns on the program so far will have to be written off?
  • McNerney used to reveal the additional R&D money added to the 787 program, but has not once it reached $1.5bn. What is the current R&D/production overrun on the 787 program?
  • Boeing ended 1Q09 with $4.4bn in cash. Watch for the cash level that will be announced for the 2Q09 quarter. In this context, Boeing will pay Vought $580m in cash to purchase the Charleston facility: how will this be funded by Boeing? Out of cash? New debt?

747-8 Status

  • Executives will likely give an update on this program. Analysts and reports should specifically ask about the GEnx SFC fuel consumption. We hear this is several percentage points over the SFC target. (This also applies to the 787 GEnx version.)

4 Comments on “Earnings preview at Boeing

  1. Is the dividend safe?

    Will there be another charge against earnings due to 787 delays?

    What is the true “all in” cost of the Vought aquisition? We know there is some 400 plus million in deposits that won’t be refunded. Are their additional costs and what are they?

    Obviously, the Charlston operastion is going to be a loss leader from some time, what are the projected forward losses from this operation, and at what point will it cease to be a drag on earnings? How much additional cash will Boeing have to put up to fix the operation, or is it essentially turn key now?

    Will Boeing have to issue new debt before 787 begins to provide substantial revenue?

    What incentives might Boeing be prepared to offer it’s unions in exchange for a no-strike/arbitration agreement? OR is it simply looking for a longer term (10yr?) standard labor contract? Or is their expectation that the unions will simply agree no to strike for free?

    If Boeing fails to reach agreement with it’s unions and move the second 787 line, how do they expect the unions to react when their contracts expire in three years, keeping in mind that all the rest of the legacy commercial programs will still be in the puget sound? Would this not poison the waters so much that another protracted strike might be in the cards three years from now? Why should the unions not engage in an epic labor stoppage over outsourcing issues in that scenario?

    How do the expenditures on 787 and the Vought aquistion affect development of a 777/737 major refresh/replacement?

  2. Is it true that Boeing already advised customers of an additional delay to 787 deliveries in excess of 12 months?

  3. Breaking News: Boeing to cut 1,000 defense jobs ! ! !

    Origin:
    http://www.komonews.com/news/boeing/50804252.html
    (also Reuters, AP, Google news)

    Jul 14, 2009 at 6:07 PM PDT

    By Martha Kang

    SEATTLE — Some 1,000 employees of the Boeing Co.’s Integrated Defense Systems division will lose their jobs as a result of the Pentagon’s budget cuts, the head of IDS told employees in an internal memo issued on Monday.

    Jim Albaugh said the layoffs will affect workers at several IDS work sites, which are located in the Puget Sound region, Albuquerque, Anaheim, Houston, Huntington Beach, Huntsville, Long Beach, Mesa, the Potomac region and St. Louis.

    The company will begin notifying the affected employees this week, Albaugh said.

    “There have been decisions made by our customers that will not be changed and which require action on our part,” Albaugh wrote in the memo. “In recent weeks, customers have directed us to stop work or reduce the level of effort on some specific programs, requiring us to take immediate steps to reduce employment.”

    It is not known whether the announced layoffs will affect any Boeing workers in Western Washington.

    As of April 2009, 7,616 workers were employed by Boeing’s IDS division in Washington state. Most of those workers were working in Seattle and Kent, and smaller groups were based in Renton, Auburn and the McChord Air Force Base.

    Boeing Co.’s IDS division employs 69,245 employees nationwide, according to the numbers released in April. Washington state is home to the third largest IDS workforce in the country after California and Missouri.

  4. RE, My queation # 4 “Will Boeing have to issue new debt before 787 begins to provide substantial revenue?.”

    McNerney and Bell had every opportunity to answer it during the call, there was a question that skitterd around the issue, but MAC n bell, kept mum.

    24 hrs later, the answer:

    http://www.reuters.com/article/marketsNews/idUSN2338307420090723

    Boeing to sell $1.5 bln debt in 3-part sale – IFR

    On my last question, they stated commercial R+D are being cut, so one has to assume no 777 refresh/ replacement, and no replacement for 737 any time soon.

    But most schockingly, Bell could say if the 787 is in a loss position or not. If he can’t that means it prbably is, which essentiall means they could deliver every single 787 on backorder, and not make a dime.

    On top of that they mention the possibility of not fully finding their pension obligations. What are they doing? Running for congress?

    Look, their profit figures are just meanigless when you consider how jacked up the balance sheets could be for years to come.

    And on the unions? They souned like drowning men trying to cut a discount contract for swimming lessons.

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