Here are highlights from today’s Boeing’s second quarter earnings call.
Jim McNerney (JM), CEO
Greg Smith (GS), CFO
- We are working closely with UK investigators on Ethiopian Airlines 787 ELT fire. In anticipation of planned action by regulatory authorities, we have provided guidance to airlines to inspect, fix or remove the ELTs. We remain highly confident in the future of the 787 and integrity of the airplane.
- Traffic trends improving. We see continued pressure in cargo market but pleased with recent 747-8F activity.
- Launch of 787-10 is great move, with five key customers. Launch of 777X coming soon, with EIS around the end of the decade. 737 MAX performance exceeds competition. We are positioned to match production with additional demand. (Translation: MAX this is a McNerney hint that 737 production rate increases are coming.)
- Began assembly on first KC-46 tanker.
- Launch of 787-10 did not change accounting block in the second quarter but it will later in the year when orders firmed up. (Editor’s Note: Accounting block is 1,100, Readers may recall.)
- Priorities going forward remain clear: Profitable ramp up of production programs, strengthening and repositioning defense business, providing increasing value to customers and shareholders.
- JM: There is pressure to for more 787-9s and -10s. We’ll make the call of going beyond 10 once we’ve settled in on 10. If I were a betting man, I would bet market pressure will go beyond 10.
Note: In June we had a graphic about production rate increases for the 737 and 787 (and the 767). See it here.
- JM: Achieving 50% market share for 737 MAX–the answer is pretty straight-forward. Airbus introduced NEO about 1.5 years before we did. We at about same pace for customer penetration. They are producing at same rate and we’re ready to go forward with higher rate, moving deliveries to the left. I’d be very surprised if we’d be much off 50-50. We will have higher market share in wide bodies, where we’ve got five relatively new offerings to their three when they get A350 variants introduced. I feel very bullish on widebodies. I don’t want to give a market share prediction. (But will be higher than 50-50.)
- JM to suppliers: We are determined and committed to reduce costs. We face sequestration. There are aggressive competitors. We need to be out front of these trends and for our suppliers who work with us aggressively, their business can grow disproportionately. We are in only the second inning.
- JM: Rate 10 on 787–end of the year.
- JM: Is 747 program sustainable? We do see it as a viable program. As cargo market normalizes over next year or two we should see more orders. The point is how well we are doing in the cargo downturn.
- JM: It’s too early to say where the 777X wing will be built. Will decide 2-6 months after program launch.
- GS: Employment count in Seattle declined as 787 issues cleaned up and productivity improves.
- JM: Re: 787 LHR fire. We’re in discussions with Ethiopian how to fix the 787 (ie, who pays). We obviously will honor warranties and each of us has insurance. Typically we do repairs for new airplanes but over time others will. In this case Ethiopian will rely on us on how to handle repair.
- JM: in response to John Leahy saying 787 is unreliable and rushed to market: I think even John felt that he got carried away with himself, which can happen, but you’d have to ask him. Reliability is about the same as new models.
- JM: On whether 737 can achieve 50-50 without a price war: We’re getting reasonable pricing. I don’t see pricing that destroys or significantly impairs our economics.
- GS: 787 program is profitable today. (Editor’s Note: This is based on program accounting methods.)