Ray Conner, CEO of Boeing Commercial Airplanes, appeared today at the JP Morgan aerospace conference.
Here is a running synopsis:
Ray Conner (RC)
Joe Nadol (JN) of JP Morgan:
RC: It’s important to recognize that batteries are not used in flight. They are back-up to start the APU and for the systems. After events, put together 200 engineers. Have done 200,000 hours of analysis. Have come up with comprehensive solution and presented to FAA on Feb. 22 and last week to Japan.
JN: Any sense of the timeframe and cost?
RC: So much is dependent on where the FAA goes. This is the dictating thing to get off and running. Once we get that it will move fast to get the airplanes back in the air.
From a cost perspective, we’re continuing to produce at 5/mo and airplanes rolling out clean. All prep work being done so once get OK we can implement and deliver the airplanes.
JN: Airbus switched to nickel cadium batteries; Boeing used in the past. Why did you decide to stick with lithium-ion?
RC: Even with all the analysis, we didn’t see reason to switch back. It’s much faster for us to get back into the air with li-ion. As we worked with outside sources, we were more comfortable. Technology has moved a lot over the last several years. It’s not that Airbus is moving away from technology, it’s their having a clear path forward.
JN: How is rest of 787 production process?
RC: Some suppliers are already adjusting to the 7/mo rate break. Once you get the plane stabilized in terms of design, rates can move very quickly. Things could change if things go sideways with FAA, but we’ll cross that bridge if we come to it.
We have the 787-9 moving through the production system, too. The -9 is a big change.
JN: What is demand across the product line now?
RC: Narrow bodies have held up very well. We have more demand in some years than our production can handle. We have done a very good job of managing skyline and the bridge into the MAX. The demand in passenger traffic has not slowed for single aisles, or for 777 and 787. 70% of US market to be replaced over next 20 years.
Europe will see growth from LCCs on single aisle and network carriers for wide-bodies.
JN: As you think about 2013 is there still a decent tail for the 737NG or is it slowing down a bit?
RC: Last year was a solid year and this year will be another good year, maybe not to level it was for MAX. The way we see it, MAX is hitting all targets for schedule and performance. NG the demand is taking us right through the bridge. We’ll be selling a little farther out so may slow a bit.
JN: Is there pricing pressure?
RC: I think margin will be OK [for 737NG]. Some initial launch deals for MAX can be a little more aggressive, but we’re seeing that become more stable.
JN: MAX–I thought pressure would be more on late NGs than on the MAX.
RC: We were a little late getting into the marketplace with MAX and there was pricing pressure on NGs. We were about a year late so we were more aggressive than we would have been had we not been late.
We’ll have final configuration for MAX the middle of this year.
JN: LEAP is a new engine and competitor engine has been vetted. LEAP is at an earlier stage. How would you gauge your comfort?
RC: LEAP is derived from A320neo but it is optimized for 737. We’ve done our audits with that engine. One of reasons we went down sole source scenario was that we optimized the engine for our airplane.
JN: 747-8–it’s a smaller part of the business now. Backlog is declining. Freight environment is tough. Your SEC filings raised concerns. What’s the latest in demand?
RC: It’s no secret cargo market has been tough the last couple of years. We are starting to see some signs it’s starting to pick up. Hopefully we’ll see more demand this year. If freight and cargo comes back, we’ll be in pretty good shape but [otherwise] have to watch month-to-month. With passenger version, interiors take more engineering so it is slower. Key thing will be cargo. [Needs to have slightly more than 12 months decision timeline to reduce production rate from two to one.] We have open slots in 2014.
RC on 777: We’ll be book-to-bill of one:one this year. Some people get concerned about A350 but we’re still getting orders for 777.
JN: You guys have been more in wait-and-see mode than many would have thought–787-10, 777X. Characterize the timing.
RC: On -10X, it’s pretty straight-forward airplane, just a stretch of the -9. We’ve been in the market, does 90% of the -9 markets, phenominal costs. Cleary having the fleet down now has slowed things. I hope to bring that forward soon.
777X: new engine, more seats, composite wings, both of these could take place once we get through battery issues. 777X, 787-10X is a killer-combo.
Working hard to get 777X business case where it needs to be.
JN: Give high-level assessment of challenges.
RC: Focus is on execution of rate breaks, how we work with supply chain to drive out costs. Taken same kind of approach into the development side. Potentially could have five development programs going on at any one time. We did five rate breaks last year. That was not without a lot of hard work. We’re going to have tougher rate breaks going forward.
JN: Update the tanker.
RC: Tanker is going well. Moving through preliminary design very well. USAF and we are pleased where we are at. We’ll have a very solid production line with FedEx planes coming through and tanker will integrate.