Dec. 3, 2014: Boeing remains “confident” it will be able to bridge the 777 Classic production line at current rates to the introduction of the 777X in 2020, including some “feathering” of the two airplanes.
Boeing president and COO Dennis Muilenburg also said cash generation and free cash flow will remain strong even as Boeing invests in research and development, hikes stock dividends and buys back shares to boost shareholder value.
Muilenburg made the remarks today in a wide-ranging question-and-answer format during the annual Credit Suisse Global Industrials Conference in New York.
Muilenburg said that Boeing is improving results with lean manufacturing, capturing quality upfront, its controversial Partnering for Success cost-cutting program with suppliers and increasing production rates on the 737 and 787 lines.
“We’re playing into a very strong commercial marketplace, a record marketplace, right now,” he said.
The 787 program remains a challenge with more than $25bn in deferred production costs, but Muilenburg said this will “roughly” be the peak. The 787-9 is more profitable than the -8 and next year will be about equal to the -8 in deliveries. Production, over the last two years, has gone from a “cold start” to a “stabilized production system” at 10 787s per month. “Every airplane is coming down in unit costs. The 787 program will go cash flow positive in 2015,” he said.
Free cash flow, a key financial metric that aerospace analysts follow closely, is current at $5-$6 per share, noted Credit Suisse’ analyst, Robert Spingarn. The target from analysts is in the mid-teens, he said.
“Getting here could take five or six years.” Muilenburg agreed.
“We’re going to do this in a way that makes good business sense, executed in a steady way. It will be executed in years. There are some cash headwinds, [for which] we’ve been very transparent. Ramping down C-17 line, for example. Building C17s in 2015 but delivered in 2016, this could create some headwind.”
Free cash flow is closely tied to whether Boeing will be able to successfully bridge the production gap for the 777 Classic. Muilenburg is confident Boeing can. There are 300 in firm backlog today, 150 in options that customers can exercise and so far this year 57 orders have been placed.
“We’re very confident we’ll be able to fill that bridge. We’re filling slots in 2017 and 2018 now. The 300ER is unique in the market right now. The installed base is 1,200 aircraft 40% are more than 10 years old.”
Muilenburg downplayed the contribution the 777F might make to building this bridge.
‘The freighter market is an important parameter but not dominating. It will be helpful but we’re not counting on it,” he said.