Here is a 16 minute podcast about the conference call and news.
Here is a running recap of the Boeing webcast on the announcement today of the new schedule and $2.5bn charge.
Present on the call are CEO Jim McNerney, CFO James Bell, Scott Carson, CEO of BCA, and Pat Shanahan, VP Products at BCA.
McNerney (JM): There is no question the execution of this program has had challenges and there is work still to be done. We see the 787 adding tremendous value to the customers and Boeing.
Carson (SC): We are contacting customers with timing of deliveries. 787-9 first delivery in 4Q13. As part of schedule adjustment increased time between first flight and first delivery to address issues that might arise during testing. First three test airplanes, suitable for flight testing and certification, have limited commercial value.
Shanahan (PS): Over past two months engineering has developed full understanding of stresses and modeling has been tested. Straight-forward modification but installation is difficult due to space available and number of people who can be inside to modify. Static test will be repeated before first flight. Modifications on planes 1-15 will be done in Everett; from #16, mods will be done at partners. On airplanes 1 and 2, software changes have been implemented. Both airplanes are ready to fly except for wing-to-body modifications.
Bell (JB): The program is not in a forward loss position. $2.5bn charge on test airplanes will be taken in 3Q09. Six test airplanes were originally to be refurbished for commercial delivery, and now we determined that the first three flight test airplanes can’t easily be sold and therefore won’t market the first three test aircraft. The sole use for these aircraft is now for flight testing. We believe we can sell flight test airplanes 4-6. First three airplanes removed from program accounting but last three remain in program accounting.
JB: It would not be fair to say that if Boeing weren’t taking this $2.5bn that there otherwise would be a forward loss position. Taking this loss has positive implications for future profitability of the program.
SC: Possibility of planes 4-6 being sold in executive market continue to look to be commercially viable and marketable. JB: inventory value on these three is considerably less than on first three but don’t disclose the value.
JB: Operating models and productivity improvements from lessons learned went into analyzing whether there would be a forward loss. Analysts cannot assume the $2.5bn represents the cushion between a forward loss and not a forward loss.
JM: We’ve gone through a pretty thorough analysis on the side-of-body to understand the fix and implementation of fix to determine schedule. We have a high degree of confidence for the fix and implementation. We have added flight test cushion to schedule for unknowns but internally will be running to previously planned flight schedule.
PS: Why should our confidence be higher in the schedule so we don’t have to do another call like this? Time has passed since June and we continue to mature the airplanes, testing, sub-assembly testing, we are seeing a lot of maturity in airplanes themselves as we taxi. The pilots tell us the airplanes are ready to fly. I feel confident in side-of-body fix. The analysis has tracked as originally thought. So question is how do we maximize concurrency so we can go forward? I feel confident.
SC: We will continue to refine discussions with customers about who takes what airplane when. We have stayed in touch with supply base and discussions contine to proceed. Having the schedule in place and looking at global economic conditions that may influence when customers want the airplanes will influence delivery schedule.
SC: First three airplanes will be FAA-type certified.
JB: We will be looking at R&D effort going forward for derivatives and look at plan how much balance we will have to have better control. We won’t take everything back and redraw the lines but we are using lessons learned to come to some concrete assumption how we will do that. We are looking at how we can make this operating model better going forward for us and supply partners. We are not looking to shift burden to partners.
PS: The models still remain credible, added clarity to models and testing adds greater fidelity and understanding to center wing box and body join. We’ve changed the model so that the model will show conditions. We feel comfortable now designing to those models. I have absolute confidence that the analysis for side of body and it works. There is nothing that has drawn us to other parts of the airplane that draws analysis.
JB: We can’t give delivery guidance on 2011 and 2012. Same ramp up as prior schedule.
SC: Second line is required when we get to rates above seven a month. We are in the process of evaluating where it will be by YE. We placed a hedging move in South Carolina to assure we did not have an adminstrative issue and we can now evaluate two sites, including availability of trained personnel, costs, and meeting schedule. Permitting process is about meeting schedule.
JB: Inventory continues to grow at about $800m per quarter. $2.5bn expense is a significant increase to previously expended R&D.
PS: Extended flight testing schedule is a more conservative approach, not reflective of any new issue. It’s to allow if anything comes up with side-of-body issue.
SC: Will decide on Line 2 late this year and this supports the schedule of 10/mo by 2013. Each supplier is in a little different condition to support a higher rate but we are more constrained than they are, generally, about where we put the second line.
SC: We have taken steps a number of times to strengthen the team, done a lot more outreach with supply base than we did initially. The team has held up very well to the challenges. We have brought people in from IDS and other locations.