Boeing’s 1Q2010 results

Boeing released its first quarter results today.

Here is the press release.

Here is the 12 page PDF financial presentation.

Earnings call begins:

JM: Jim McNerney, CEO

JB: James Bell, CFO

JM: The financial outlook for the worlds airlines has improved dramatically since last quarter. Some customers continue to defer and cancel orders but are seeing demand from other customers. During first quarter number of deferrals was about the same as last quarter but demand surpassed it.

  • We anticipate a decision this quarter on possible rate increase of 737 from 31/mo.
  • We continue to see strong demand for international defense markets, including 737-based derivatives, services, hardware, cyber-security.
  • We remain in a fundamentally solid position despite continuing world uncertainties.
  • We expect book-to-bill ratio to be lower than one this year but higher than last year.
  • More than 500 hours of 787 flight testing in more than 170 hours. Remaining two 787s to be in service by the end of this quarter.
  • Remain on track for first delivery by the end of this year. We have several contingency plans in the event of challenges in flight testing.
  • Expect 10/mo 787 production by the end of 2013, including 3/m0 from Charleston.
  • 747-8: three airplanes flying, no major issues. Nearing completion of engineering releases on 747-8I with delivery in 4Q11. First 748F delivery still planned for end of this year.
  • Current company backlog about five times annual revenues.

JB: We are working closely with 787 suppliers on their assertions (claims) and expect to have most settled by year end.

  • Expect to have accounting block quantified once delivery begins.
  • Generally pleased with first quarter performance but recognize a lot of work needs to be done [to improve financial performance].
  • Expect 460-465 deliveries this year.
  • There continues to be some supplier challenges [principally the Japanese-supplied seats] that may affect delivery flow in any given period.

JM: We are off to a good start in 2010, with good progress on 787 and 748. We are methodically working through our challenges.

Q&A

JB:

  • 748 is still a challenge. But we are managing risks and improving development performance, reducing performance costs.
  • Commercial R&D for the year will pick up a little in 2Q and hold flat as continue to work on 787-9.

JM: We went into 787 flight test with a cushion. What we are finding very few configuration changes. One of the advantages of the [delays] is we had extra time to work on it. We are getting more data per flight [than anticipated]. This enables us to get more information for certification from data than from extra flights. Team is looking to add [back] into the cushion.

  • We are reducing 787 risk everyday.
  • Oversold numbers: relationship between demand and supply as increased. Oversold condition has increased [737], a key factor to potentially increasing rate of production.
  • Charleston: We’re slightly ahead of schedule on construction of expansion. We had pretty good visibility at Vought and Global Aeronautica and I would say we are working through as we integrate those facility with the rest of our production system some normal production and inventory-balancing issues.
  • 777E and 737RE: This year will represent the high point in R&D for a while. Depending on the timing of the 737RE and 777 work will climb again depending on what we do.
  • 787-9 capability is going to be very good. The kind of improvements we think we can make in the 777 smaller and larger versions may be enough to handle the 787-10 mission. It may be we need a -10 but we’re seeing real capability in the -9. To the extent we re-do the 777, which is a real option, for carbon-fiber and what we can get out of the engine, will determine what we do.
  • By the end of this year we will have charted a course whether we re-engine the 737 or move on to a new airplane.
  • 787: We are seeing very few issues due to the maturity of the design. We are seeing a pretty methodical step-through of the things we need to demonstrate.

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