Here is what the analysts are saying about the Boeing investors’ days this week:
From Wells Fargo:
- 787 and Ramp Up. Overall, we believe the biggest issues that investors have been trying better to understand are (1) the ability of Boeing to ramp up production of the 787 to 10 per month in 2013; (2) the program accounting for the 787; and (3) the plan for replacing the 737NG and its impact on R&D. Management did not give any more clarity to the production ramp up and thinks it has increased its visibility into the supply chain through MRP & IT systems and that it believes the Tier 1 suppliers should be able to support the ramp to 10 per month. Management is more concerned about Tier 2 & 3 where it has less visibility into their readiness.
- BCA Volume Increases. While commercial airplane units ordered may decline in 2011 vs. the 530 in 2010, management indicated that it expects 40% of the orders to be higher dollar wide-body airplanes vs. 20% in 2010. This likely means the dollars of orders and backlog are not significantly different. More importantly, the over 7 years of backlog at Boeing Commercial Airplanes remains very high and the production rate increases are meant to try to bring that down. Even excluding the late 787/747 backlog, management indicated that Boeing is sold out on the737 line through 2015 with positions sold even in 2016-2017 and 4 -5 years of backlog on the 777. This is supportive of another rate increase to 42 per month.
From Goldman Sachs:
- Next-gen wide-bodies finally happening; both positive catalysts: BA stated 96% of its 787 flight tests are complete, and c. 40 FAA deliverables remain, versus the original 4K. Focus should now shift to the ramp, which will see 4-5 steps at 6-month intervals. It is widely expected that 747-8 will see another delay, but the aircraft tour was impressive, only F&R and ETOPS remain, and BA expects multiple 747-8 orders in the very near-term (freight and passenger). EIS targets were reiterated and should be near-term catalysts.
- BCA calls backlog too big; discusses upside to all rates: BCA leadership believes it has overdone its intentional undersupply of the market, and now needs to increase output. BA strongly hinted at a summer announcement of 42/month on 737. However, different managers provided conflicting comments on 777 stopping at 8.3/month (although all say there is clear upward pressure given very strong demand and the current competitive position versus Airbus).
From Credit Suisse
- 787 Ramp to 10/mth by 2013 Seems Optimistic: While EIS looks solid, we think BA faces a challenge to ramp 787 given the immaturity of its global supply chain, the intro of 787-9 in the midst of the ramp (EIS 2013), the bifurcated line (Everett & Charleston) and significant change incorporation required on the first ~20 units. Currently, it is at 2/mth moving to 2.5 this summer. Although BA was not specific about incremental rates, we believe they will rise to 3, 5, and 7/mth in 6 month increments thereafter.
- Product Development: Re-engine Re-emerging on NB, 787-10X Gains Steam: While it was never off the table, a NB re-engine was referenced more frequently than expected. While we think mgmt still prefers a clean-sheet solution, a re-engine could be introduced two years earlier (2017) and offers lower development costs. BCA CEO Albaugh spoke confidently about the prospect of a 787-10X (~320 seats, ~7k nm range) competing effectively with a potential A350-1000 (~340 seats), and we note that the -1000 may still need a new engine and wing. We gained confidence in our theory that BA’s strategy in the small narrowbody market (below 150 seats) is to simply offer the 737-700 with aggressive pricing to maintain decent share.
From Bernstein Research:
- This week’s Boeing Investor Conference reinforced the views expressed in our March 11, 2011 Research Call, “Boeing, EADS: Product Strategies – Too Many Airplanes, Not Enough Time; AirbusMust Execute, Boeing Must Decide“. In that earlier work, we described how Boeing has the potential to achieve a dominant position in long haul aircraft (outside of the Very Large Aircraft or VLA space) if it can deliver a compelling 787-10 derivative. At the same time, we have long advocated that Boeing should pursue a reengined 737 in response to Airbus’ A320neo. Boeing management continues to say that it is leaning toward an all-new airplane, but discussions in Seattle reinforced our belief that the end decision will likely be a reengine.
- On widebodies, it now appears that challenges in weight reduction on the 787-9 are closer to resolution than in the past, which could enable the critical 787-10 derivative. The BCA leadership now believes that it can launch a 787-10 stretch (potentially going as high as 335 seats) that would have a range greater than 6,000 nautical miles, without requiring a redesign of the main gear or extensive changes to the wing (some work would need to be done to allow a higher wing loading). The key has been weight reduction in specific areas (e.g. tail design, wing-body join), rather than a thinning of the composite skin, which might have added more complexity to production lines and, as it turned out, did not provide sufficient savings. This means that the 787-10 would come in just below the A350-1000 in size, enabling Boeing to make an eventual 777 replacement that could run from 350 seats to 420 seats.
- The combination of the 787 and an eventual 777 replacement would fill out the medium to large widebody market much more effectively than Airbus could with the A350 alone. In the long run, the 787-10 would also add to profitability because of the pricing advantage without a commensurate increase in costs – this would not come, however, for several years.
- The A350 remains a challenging program, with Boeing believing that the A350-1000 (the biggest threat to the 777) will likely not go into service before the end of the decade (versus the Airbus plan for EIS in 2015). Our understanding is that Airbus is limiting the A350-1000 to 350 seats, despite customer pressure to make it larger. Sufficient restraint on the design may enable Airbus to meet an EIS date well before 2020. Still, we understand that Airbus has needed to increase the size of the wing by 3% through an enlargement of the trailing edge and that there is uncertainty on Rolls Royce’s ability to deliver the required thrust (originally 94,000 pounds) with the same engine core as for the A350-900.