Boeing is entering 2015 better and stronger than at any time in recent history, said CEO Jim McNerney at the start of the Boeing earnings call today on 2014 financial results.
“We’ve completed a comprehensive refresh” of the product line with the 737 MAX, 777X, 787-10 and 737 MAX 200, he said. McNerney said that from lessons learned, the company has de-risked product strategy going forward. Boeing has also obtained long-term labor contract stability.
“We are equally committed to breaking the cost curve” on new airplane development programs, McNerney said.
McNerney said the outlook for the commercial aviation business environment remains positive. Boeing now has an eight year backlog as present rates.
Despite today’s fuel price environment, McNerney sees a continued positive outlook for deliveries and new orders. A combination of growth and replacement will continue to drive orders. He continues to see 40-60 777 Classic orders per year to successfully fill the production gap to EIS of the 777X.
Greg Smith, the chief financial officer, said production costs on the 787 are going doing and should be cash positive this year, despite deferred production increases to more than $26bn. Production costs will continue to increase, Smith said, with investments and preparing for the rate increase to 12/mo for the 787-10.
(Boeing at one time predicted a top of $25bn in deferred production costs and, during the 3Q earnings call, Smith said he didn’t see a path whereby deferred costs would increase another $2bn to $27bn. Editor)
Q&A: (Quotes are paraphrased.)
JM: Jim McNerney
GS: Greg Smith
GS: Expects deferred production costs to start coming down in 2016 after hitting 787 rate 12.
JM: On 777, gut issue to bridge to the 777X. The 63 orders for 2014 bodes well for the 40-60 orders needed for the 777 Classic. Swapping 787-8 to 787-9 bodes well because the 787-9 has a higher price. Hampered by the orders to 2021, but see options being picked up as get closer to the end of the decade. The 787-9 performance is better than expected. This airplane grows the market with more city-pairs than were available with older airplanes.
GS: There was 30% more 787-9 mix in fourth quarter than third quarter in the production. Deferred going up $2.5bn over next three quarters. Some of this are investments in production lines. Labor levels remain higher than expected, which add to costs. On supply chain side, some cost cutting has moved to the right with some slower agreements [on Partnering for Success] and as learning curves engage.
GS: We have seven C-17s that are unsold. 737 accounting block increased by 200, all of which are MAX airplanes.
JM: It is a sign that the 777 Classic is an enduring capability and there isn’t capability from the competition. We see some more blended orders in future for 777 Classic and 777X.
It is early in the year but I think we will see a book:bill of at least 1:1 this year. [On all equipment types.]
GS: No change in 737 and 777 margins in 2014.
GS: The fundamental milestones around the 787 program being cash positive by 2015 and going to rate 12 haven’t changed.
GS: Terrible Teens (787). We continue to see a viable market and continue to have active discussions for these. We expect to deliver three or four this year.