787 production ramp may be faster; softer 2013 orders expected

Credit Suisse and UBS issued notes on Boeing today. Here are excerpts. Key points: production ramp up on the 787 may go faster than expected; Boeing continues to consider a rate higher than 10.mo for the 787; 2013 orders expected to be around 1:1 book-to-bill.

Credit Suisse

Softer 2013 Bookings May be [coming]. We agree with [Boeing] that cancellation concern is likely overdone. However, we think orders will slow…most airlines are already in the book, and we will not see a new product soon enough to spur activity. Although softer bookings are better than cancellations, and may not pressure production or earnings growth, orders have been the key historical share driver. So, although BA has not backed off a ‘13 book:bill target of 1.0x, we are less convinced, unless a number of ‘12 MAX commitments defer to ‘13.

[Boeing] noted that deferral and cancellation rates continue to be at or near historical lows. The leading indicator of trouble are conversations between airlines and Ray Conner (CEO of BCA) and these have not elevated beyond the normal level. Also Boeing commented that it is not seeing a slowdown in demand, if anything it is seeing an increase in demand for accelerated deliveries.

Regarding 2013 book:bill, we believe the most recent formal Boeing projection was made by Jim Albaugh at May’s investor day, targeting 1.0x or slightly better. Since Ray Conner recently assumed control of BCA, he has not changed the target, saying at an investor conference just last week that he expects 2013 bookings to remain near 1.0x.

However, we believe this target is highly sensitive to the timing of MAX commitment conversions, the health of the cargo market as it relates to 747, and 777 demand in the context of timing of the A350 schedule for those carriers interested in both.

One factor that could augment 2013 orders is a timely introduction of a 787-10 or 777X, although we think the former is more likely. Boeing expects more clarity on its widebody plan later in 2012 or early in 2013.

787 Rate – We estimate that most of Boeing’s suppliers are already at 5 shipsets per month, which should enable Boeing to achieve that rate sometime in Q4. Following this we expect Boeing to begin loading at 7 per month and then 10 per month in 6-month intervals.

Regarding 2013 production, while rate plans would indicate 6-months at 5 per month and 6-months at 7 per month, for a total of 72 aircraft produced, we note that a multi-week lag (currently 6-8 weeks but Boeing is attempting to get this down to 4 weeks) in delivery timing means that deliveries of newly produced aircraft will be somewhat lower.

However, some EMC (Everett Modification Center) aircraft will supplement deliveries, which should offset the production-to-delivery lag. Consequently, we now see 74 787s delivering in 2013, give or take, down slightly from our previous estimate of 78 deliveries. Boeing is continuing to evaluate the potential for the rate to exceed 10 per month, with investment as the key decision factor. The company expects to make a decision on a higher rate at the point at which it reaches 10 per month, scheduled for end of 2013.

 UBS Securities

Dreamlifter indicating BA could go to 5/mo earlier than expected We believe the large structural suppliers are now in line to ahead of Boeing’s final assembly rate at 3.5/month. We believe our Dreamlifter tracker indicates Boeing’s final assembly rate could move up to 5/month earlier than expected.

18 Comments on “787 production ramp may be faster; softer 2013 orders expected

  1. “We estimate that most suppliers are already at 5 per month” shows how ignorant these financial analysts are: The majority of the upstream supply chain should be at 7 per month right now to facilitate the next rate break to 7 per month in early 2Q next year. Indeed, some already are.

    The question is, will Charleston sufficiently progress down the learning curve to match the rate increase from 5 to 7 and then to 10? The current rate increase in mid-body assembly is facilitated by a third assembly line rather than learning curve progress. At rate 5, flow time is still 3 months. To achieve 10 per month, Charleston either has to cut flow time by half over the next 12 months or set up another three assembly lines. There’s room for one at best.

    • Here’s recent comments from Ray Conner on the 787 production. (check out the last sentence)

      http://www.heraldnet.com/article/20120914/BLOG01/120919920

      Quote:

      On the 787:

      “Production is at “five a month in the supply chain today.”

      “We’ve got a few hot spots in the supply chain but nothing I’m freaked out about.”

      In the factory “we’ll end the year at five (787s) a month. I like where we’re going.”

      The challenge for reaching Boeing’s goal production rate of 10 787s monthly by the end of 2013 will be adding in the 787-9 into the mix next year. “But that’s why we have the surge line” in Everett, he said.

      At Boeing’s North Charleston, S.C. site, “we’ll be breaking (a rate of) two each month soon.””

      • For Conner, supply chain probably means Tier-1. In case Tier-2 and -3 are not at rate 7 now, forget about rate 7 in 6 months.
        If Charleston breaks rate 2 soon and all FALs combined break 5 soon, this implies that Everett scales back from 3,5 now to 3 while going from one FAL to two. What do I miss?

  2. Ray and the other folks at Boeing better start paying attention to the SPEEA Engineering contract. Its gonna be pretty hard to keep or increase the rates without the Engineers and Tech’s. Boeing is on the verge of a strike and they keep talking like the sky is blue (just like the 787 program before all the delays). Watch out !

  3. The problem is not production, its the pre delivery that is a mess now, frames queing up on flightline. I think I read about a shortage of testpilots somewhere, other than testpilots mechanics would be needed as well? If they start pushing out 5 frames a month at Everett it will be a mess very fast. Add those frames that finish rework and the field will be even more crowded than before. They already have a shortage of stalls for 787s that are ready for testflights. What a constant mess this program has been. They will need to deliver more than 5 frames a month to ease the pileup.

  4. 2012 deliveries are at 2/month. To increase the average to 2.5/month would require 14 more this year for a total of 30. Doubling the rate in 2013 could yield 5/month for a total of 60. Doubling tthat again in 2014 to 120 would be impressive.

  5. It seems every still hates to be conservative on comparing the Dreamliner production goals. W’ll never learn.

    • Keesje, honest to god, can you revisit this sentence? I can’t make out your point here?

      “It seems every still hates to be conservative on comparing the Dreamliner production goals. W’ll never learn.”

      I am absolutely sure your English far superior to my Dutch. what are you saying?

      • may I help you:
        “It seems every }one{ still hates to be conservative on comparing the Dreamliner production goals. W}e{’ll never learn.”

        I allways assumed that native speakers are better at working on imcomplete material. Oh well.

      • It seems everyone still hates to be conservative on estimating/evaluating/predicting the Dreamliner production goals?

    • I don’t know how “comparing” slipped into the sentence, probably an unnoticed ctrl-V or something.

      Observer (honest by God), what I am saying is that, despite having hit the wall a dozen times on upbeat, optimistic and ambitious 787 production forecasts, many will jump on the next one like there is no yesterday. Simply amazing.

      If the past means anything on the 787, we should be conservative and assume unforeseen hick-ups. Not again assume Boeing will likely beat ambitious goals. It just aint happening.

      Credit Suisse and its customers probably have an interest in positive rather then realistic communication.

      http://articles.marketwatch.com/2007-12-06/news/30978980_1_credit-suisse-dreamliner-boeing

      • Like KC135TopBoom slams positive analysys for Airbus (is it from Credit Suisse or USB?), I don’t really buy that they are pressured into making it positive any more than I believe that they have ulterior reasons to make a positive analysis for Boeing.

        I believe in all cases, it is the analysts reputation that is on the line and any skewed record of incorrect positive reports would be rather quickly spotted.

  6. KDX125 :
    For Conner, supply chain probably means Tier-1. In case Tier-2 and -3 are not at rate 7 now, forget about rate 7 in 6 months.
    If Charleston breaks rate 2 soon and all FALs combined break 5 soon, this implies that Everett scales back from 3,5 now to 3 while going from one FAL to two. What do I miss?

    It implies that the 3rd line (the Surge line is not included in those production numbers yet!). And that they are very possibly is ahead of schedule for rump-up.

  7. Form Credit Suisse, “we think orders will slow…most airlines are already in the book,”

    What does that imply for the long term viability of this program? If it is indeed true that the first 800 or so samples were sold for a song and most airlines have already ordered their Dreamliners, where will future orders, with a profit generating margin, come from?

  8. Pingback: 787 production ramp may be faster; softer 2013 orders expected | Boeing Commercial Airplanes | Scoop.it

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