Boeing releases its third quarter earnings tomorrow (Oct. 21). The company has already announced another $1bn write down for the 747-8 program and some aerospace analysts are predicting another $2.5bn write-off for the 787.
The company said it will provide an update on the 787 program tomorrow. Here are some of the things we think should come out of the call:
- New first flight 787 delay? We don’t think one will be announced, especially after Friday’s statement by program chief Scott Fancher that everything is on track for a 4Q09 first flight. Boeing has the very annoying habit of making definitive predictions on this program, rather than using cautionary language (the press department and the executives should re-read the Forward-Looking Statement disclaimer on their own press releases as a reminder about what and how to make predictions). Then when the Negative Surprise as Heidi Wood so eloquently put it once) arises, Boeing disappoints again. Having said all this, we don’t think a delay will be announced because we don’t believe the side-of-body fix uncertainties have yet reached a point where a delay is inevitable. Boeing’s internal target date for first flight has been November 25 (no specific date has been announced publicly), so there is room–not a lot, but some–for still flying by December 31. The question is, Will first flight be more than a “stunt-flight?”
- New 787 first delivery delay? Don’t look for anything on this, either, other than a reaffirmation of a 4Q10 first delivery. But aerospace analysts are increasingly worried that even if first flight occurs in 4Q09 as planned, EIS will slip into 1Q11 or even 2Q11 because the test airplanes won’t be modified on the schedule needed to achieve first delivery in 4Q10. We don’t think Boeing will raise any red flags on this tomorrow, though.
- 787 Line 2: Perils of Pauline–where will Line 2 be located, Charleston or Everett? When will this be announced? Will Management and Labor reach an accord? Based on what we know today, talks between Management and Labor continue, so we don’t think any announcement will be forthcoming. It would, however, be a Pleasant Surprise (as opposed to Heidi’s Negative Surprises) if Boeing not only announced a decision but placed the line in Everett as the lowest risk solution. Also: despite the justified concern over the back-to-back strikes in Puget Sound by IAM 751, putting Line 2 in Everett will lead to greater labor peace than if Line 2 is put in Charleston. To do so will only invite a labor bloodbath in the future, especially in the 2012 contract negotiations.
- What about Charleston? Boeing applied for permits to clear land and construct a 720,000 sq ft building. Officials say this is simply “procedural.” Well, yes and no. Even if Boeing puts Line 2 in Everett, Charleston has to be expanded. The through-put there is maxed out at 7/mo, so for Boeing to go to 10/mo (or, perhaps one day, more), Charleston has to expand.
- 747-8 Update: we don’t think there will be anything more than was said with the announced program delay and $1bn write off.
- 737, 777 production rate cuts? Will Boeing cut rates in 2010? We bet not, absent some geopolitical event beyond anyone’s control. Boeing needs the cash flow from these two programs.
- Will there be a “funding gap” in 2010? Boeing Capital Corp. got it right for 2009 that any projected funding shortfall (projected in October 2008 for 2009) would be manageable. Boeing told suppliers last week that it believes there won’t be a funding gap that isn’t manageable next year, either.
- KC-X tanker? Will Boeing offer the KC-767, KC-777 or two bids, one for each? No decision, probably, though an executive let it slip last week (and reported exclusively here) that Boeing is “leaning” toward the KC-767. No surprise to us. Boeing has billions of sunk costs in the KC-767 International program; the KC-777 is nothing but a concept that would be marked down by the USAF for risk; and the last thing Boeing needs right now is yet another new airplane program (even if the KC-777 is a derivative). Boeing simply cannot afford this, in our view.