Jim Albaugh, president of Boeing Commercial Aircraft, appeared March 9 at the JP Morgan Transportation Conference, one day after Northrop Grumman withdrew from the KC-X competition.

Below is a running tab of Albaugh’s presentation and Q&A.

Presentation:

• Albaugh was concerned we weren’t being aggressive enough to decide what we are going to do with 737–re-engine the airplane or replace it, and the same with the 777. So two special groups have been formed to determine the future of these airplanes.
• We are starting to see traffic come back and be at 2008 levels this year, grow in 2011.
• 787 is going to be a challenge. We have a very aggressive flight test program ahead of us. We have to fly each of six airplanes about 90 hours a week. We have to ramp up production rate. Right now 2/mo, going to 2 1/2 by August, 10/mo by 2013. Highest previous rate was 92 747s.
• 747-8 program issue is that while it is not a significant departure from 747-400, flight testing of 787 and 748 are right on top of each other. 748 issue is market acceptance; passed on selling some more airplanes in 2009 because we did not feel we would get the value these airplanes deserve.
• 737 and 777 are the foundation of BCA. The 737NG has been around for 10-13 years. We project out in five years it will be a crowded marketplace. Some competitors are putting new engine technology on the plane. Airbus is talking about re-engining the airplane. Mike Bair is assessing whether to keep the airplane as is; re-engine; or go with a new airplane. We don’t want to re-engine the airplane and have a me-too airplane with  5%-7% advantage of competitors. If we don’t re-engine, we won’t be doing a new airplane. Still trying to figure out how to scale down 787 technology. Don’t want 737 to be in last place.
• Chinese are going to invest $30bn in commercial airplanes in next decade and they will eventually get there. We have to decide whether to cooperate with Chinese or compete against them. We will not exit smaller airplane market. This will not be the option we choose.
• We have an aging work force. How do we encourage new people to get into aerospace, how do we work on next generation of leaders? We are trying to drive accountability down into the workforce? In my mind, too many decisions were made too high up. How do we create leaders without accountability in the workforce?
• 737 continues to evolve, dating from the 1960s. 787-inspired interior goes in from October. Quieter. 2% better fuel consumption.
• 777: trying to improve fuel burn, working with fuel suppliers, trying to increase maximum zero fuel weight for allow greater payload, higher thrust engines for better high-altitude airports.
• 787: We’ve had more than 70 flights, about 300 hours. There is good information flow between 787-8 and 787-9. We are aggressively taking weight out of the airplane. Expect first delivery out of Charleston in 2012.
• 40% through flutter tests on 787, hit Mach 0.97 in a dive (787).
• There is 1-1 1/2 month of contingency in the flight test program. Wants to get more. (Editor’s note: originally there were 3 months margin.)
• Productivity is something we are very focused on. Taking a hard look whether to increase 737 rate this summer from 31.5/mo to 34 mo. To decide this summer. 777 is starting to look a lot like 737 relative to Lean manufacturing. Looking hard at rate increase for 777 in April.
• In 2010 Boeing has to execute 787, 747 programs. We have retired a lot of risk but we have a lot of risk ahead of us. We have to decide what to do with 737 and 777; both airplanes will be under attack. We have to maintain health of the programs, increase the program margins, especially on 787 and 747.
• We have some rebuilding of relationships to do because of disappointments.
• I want to reestablish market leadership for years to come.
• I’ve been working the USAF tanker for nine years. I’m not sure we have seen the last episode.

Q&A

• (On 777 rate decision: orders have been lacking.) We anticipate new orders this year, market is coming back. If we made announcement in April, rate increase would be in 2011. We don’t want to go up to six or seven airplanes then come back down. The A350 will be a good airplane but we think we have a lot of good years of production on the 777-300ER left and we are figuring how to make this more competitive.
• Expects 787 certification soon which will allow engineers and FAA to come on the airplanes.
• (On 737 rate decision.) We are over-committed in 2012, airlines will say they market is coming back, not too many wanting to defer deliveries, so may need to increase rates.
• (737 orders held by troubled lessors.) Trend in airline operation is toward leasing and if some lessors wash out, others will step in. Our friends in Toulouse announced a rate increase today.
• (If announces new product [737RE]): Demand for 737 Classic held while 737NG ramped up because we were in an up cycle. Hope for same scenario if proceeds with RE.