Boeing rolls out Ray Conner to analysts

Boeing rolled out Ray Conner, the new CEO of Boeing Commercial Airplanes, to analysts in New York yesterday. The first research note we’ve received, from Imperial Capital’s Ken Herbert, portrayed a positive meeting. Below is a synopsis. As we receive more notes, we’ll add those comments.

We don’t like the resumed policy of using cash to repurchase stock, instead of putting it into new airplane programs (something Richard Aboulafia of the Teal Group, normally a pro-Boeing consultant, has roundly criticized for years).

Imperial Capital

We believe BA is benefitting from several tailwinds, and is demonstrating increased confidence regarding its 787 execution and the ability to take further costs out of the supply chain. However, we believe much of the good news is reflected in BA stock, and we see slowingorders in 2013 as limiting the multiple; therefore, we are maintaining our In-Line rating. Investors areexpecting a significant dividend increase or share repurchase program, which could be a positive catalyst, but we see the new program developments, which include the 737MAX, the 777X and 787-10, as potential competing cash pulls.

Regarding the 787, Boeing confirmed that Charleston is ahead of plan, but that it has been staffed to over deliver. Boeing also made a point of stressing that its movement down the cost curveon the 787 will be similar to that of the 777. We believe that there is an opportunity for Boeing toexceed expectations on the 787.

We continue to believe, however, the much of the execution upside is priced into Boeing stock. We believe that in order for the stock to see material upside, Boeing needs to demonstrate a very bold use of the expected free cash flow, in the form of both increased dividend and share repurchases, that will attract new investor interest and accelerate the EPS growth. However, this will limit the new product development options, considering the potentially competing development requirements of the 737MAX, the 787-10, and the 777X. We believe current BCA leadership wants to do both the 777X and the 787-10, and believes that there is significant pent-up order demand for both new aircraft, but we believe the focus on share repurchases and/or the dividend, reiterated at the 8/28/12 reception, could push some development effort to the right.


  • A reader posted this link on NEO vs MAX orders and options and we think it so good we’re elevating it to a primary post. This website also recaps which airlines have switched allegiance. Thanks to Dave O’Flynn for the link.
  • China ordered 50 A320s instead of the expected 100.

23 Comments on “Boeing rolls out Ray Conner to analysts

  1. I really dont get the focus on the 787-10 being such a resource burner, its a straight upsize of the 787-9. The MAX and the 777X sure, they will drain a lot, but hardly the 787-10.

    • The issue with the 787-10, I think, is that it wouldn’t benefit Boeing commercially right now. It will take Boeing several years to burn down the backlog of -8 and -9 models. Once they have done that, Boeing can sell a bunch more – mostly -9 models.

      The -10 model will be useful in ten years time but they might as well develop it nearer the time. In the meantime if they develop the 737 MAX and 777X they can sell them.

  2. Will the engines (GEnx-1B and Trent 1000) deliver enough thrust for the -10?

    As far as I remember the answer is no. The -1B is certified to 75k, don’t know about the T1000. If I remember correctly, Boeing did not want too much growth on the engine in order to place the SFC sweet spot where the a/c was at the time (-3, -8 and -9) and to avoid the extra weight of a more powerful engine.

    Now that the -3 is dropped and the -10 is on the table, the sweet spot has moved. So if there is a new GEnx, which there very well might be beacuse the A350 could use one, there will be some interface change in the wing at least, meaning it is not only a simple stretch, perhaps not much more work than that, but some.

    • The PIP2 is to be certified to 78K, so I guess GE has the -10 covered, RR is going for a 78K T1000-TEN.

  3. I am not holdong much out for the B-787-10 untl Boeing starts putting money into it.

      • leehamnet :
        We think ATO will be before year-end.

        So the 777X will be on the back burner for the foreseeable future?

      • LOL, what do you mean?

        “We think ATO will be before year-end.”


        “We don’t see ATO on 777X for another year or so.”

      • en590swe, anyone with reasonable reading comprehension skills would know that the first sentence refers to when the ATO (authority to offer) for the 787-10 may occur, whith the second sentence refering to the likelihood of ATO for the 777X not occuring for another year or so.

      • leehamnet :
        We don’t see ATO on 777X for another year or so.

        Can Boeing realistically run the 737 MAX, 787-10 and 777X programs concurrently? If they offer the 787-10 from December 2012 and 777X from December 2013, that’s what they’ll end up with. And the 787-9 EIS isn’t until 2014, either.

        • Resources for running concurrent programs such as you described are certainly a concern. Outsourcing engineering is part of the answer, of course, though SPEEA certainly will argue this is no answer.

  4. . During last 5 yrs Airbus captured the center 300 seat segment with the A330-300 and A350-900, after Boeing dominated it for a decade with the 777-200ER. They have to get back with either the 777-8 or 787-10, or both. I think long term the 787-10 is a good idea, but Boeing probably can’t wait and see with the 777..

    • AFAIK, Boeing wants the 777-8 at 10 abreast in Y to go up against the A350-1000. The 787-10 with a max. range of about 6800 nm, will not be true B-market aircraft.

  5. “We believe that there is an opportunity for Boeing to exceed expectations on the 787.”

    Could someone please put this line in context for me?

    For a program which assumedly will not become profitable until they deliver 1100 aircraft (a possibly optimistic, or perhaps even extrememly optimistic, estimate) due to unprecedented, for Boeing, delays and a difficult ramping up period, I find it hard to exceed the expectations. That is, unless we are using the present day expectations that it will do all right for having such a rough beginning.

    • This may be a relative term. The 1100 aircraft breakeven point could be reduced if the production efficiency and costs are improved beyond the expectations when this calculation was estimated. It is possible that the improvment curve is more rapid and the process will turn out aircraft in numbers greater than anticipated with margin improvement.

      • ” if the production efficiency and costs are improved beyond the expectations when this calculation was estimated. It is possible that the improvment curve is more rapid and the process will turn out aircraft in numbers greater than anticipated with margin improvement.”

        This is what haunted the program for 8 yrs, assuming, believing, building upon the most ambitious, sporty, challenging forecasts, assuming no hick-ups, contrary, expecting better then thought realities.

        Optimism turned into planning everyone wanted to believe and even started to believe. Unprecedented delays, damaged credibility and billions in costs risings being the result.

        IMO Boeing should start working with worst case scenarios and welcome better then expected results when they occur.

  6. We need to remember also that Boeing have a body of work remaining on the 787-9 model. Add that to general performance improvements for the 787 and 747 and developments for the Airforce tanker and the MAX, that adds up to a lot of activity even if the individual programs are relatively modest. I guess those programs will keep them busy for the next four years or so. They may want to hold back development of the 777-X and 787-10 until they get through it.

  7. Concerning optimistic or pessimistic evaluations, I remember when I was working at Bombardier back in 1990, the RJ performance numbers came out much better than expected. Everybody was pleased, but one ex-Boeing quasi lifer pointed out that at Boeing, if any estimate was more than say 5% off, either positive or negative, it was considered to be a bad estimate, period. Perhaps that is the real problem, the lack of, or inability to make realistic estimates and outlooks.

    • The problem there is that
      realistic negatives are heavily discouraged by management while
      realistic positives are immediately assimilated into product specs
      and thus presented as new baselilne.

      This catapults any reasonable negative into unreasonable (negative) territory.
      Management today : broken by design.

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