Update, from 7:30 am-the Earnings Call:
Jim McNerney (JM):
James Bell (JB)
Boeing set its long-awaited accounting block for the 787 at 1,100, an announcement coming with the third quarter earnings release today. Boeing said, “At quarter end, the 787 had 821 units sold firm and approximately 200 options. The company established the initial accounting quantity for the 787 program at 1,100 units, consistent with accounting practices applied on other new airplane programs.”
Previous airplane programs were typically set at 400, according to a good analysis by Jon Ostrower.
Ostrower, in Hong Kong following the 787’s first flight (and thus up long before we were), had this quick take on the earnings announcement and some observations about the 787 ramp up and deliveries this year.
Boeing also lowered its delivery forecast for the 787 and 747-8 to just 15-20 combined. Originally Boeing forecast 25-40 evenly split between the two airplane types then in July 25-30, weighted toward the 747. Since then, Atlas Air canceled three 747-8s that would have been delivered and Boeing’s internal plan for the 787 has been eight while key suppliers have been telling us four-six. Boeing said in its press release today that two thirds of the deliveries will be 747s, or 10-13. Thus, this means 5-7 787s will be delivered this year if forecasts are met.
Joe Nadol of JP Morgan had this quick take:
BCA margins remained solid at just over 18% adjusted for R&D and 787, and we view this as a plus. The initial 787 accounting quantity of 1,100 units was 100 more than we had expected, drawing out somewhat the cash flow ramp we had expected. If we assume a unit price of $120 mn and an operating margin of ~20% for the 100 incremental 787s in the block, the variance from our estimate amounts to $2.4 bn of cash flow over 8-9 years. This is not a game changer, but it does beg the question of whether the program would still be profitable had the assumption been a more conservative 1,000 units.
Rob Spingarn of Credit Suisse has this quick take:
Most important this quarter is declaration of 787 accounting quantity which at 1,100 is in-line with the latest street expectations. We see this as a 10 year block, which jibes with the company’s historical practices and current production ramp plans. Also, mgmt disclosed deferred production on 787 (for 1st time) of $9.7B plus tooling of $1.8B, which we calculate as a non-cash per aircraft margin headwind of 9.5% for the entire block. Further, unit cost margin of 8.3% indicates that the first delivered 787 (which we believe was unit 8 or 9) cost ~$400M. Boeing has reached a rate of 2.5 aircraft per month on 787 in Everett – we anticipate more color on the call around ramp, but expect Boeing is aiming for 3.5/mth by year-end and 5/mth early in 2012. Charleston final assembly has started on its first aircraft and should deliver next year.
The earnings call is at 10:30 EDT. The webcast link is here (this being written in advance, not for archive).