July 22, 2015: Dennis Muilenburg made his first appearance today on a Boeing earnings call as president and CEO.
Dennis Muilenburg, president and CEO of The Boeing Co. Photo via Google images.
Jim McNerney, who was chairman and CEO until June when he relinquished the CEO title to Muilenburg, began the call before a transition to Muilenburg for the balance of the call and future calls.
McNerney said Boeing’s growth has been organic and he expected Muilenburg to continue growth and performance of Boeing.
Muilenburg hit the KC-46A $835m (pre-tax) charge at the top, expressing disappointment in the charge and the technical issue with the fuel system that led to it. The first flight test aircraft will return to the air this month, and the second aircraft–the one equipped with the refueling system boom and drogues–will have its first flight “this summer.”
“Notwithstanding the tanker charge,” Boeing delivered a strong quarter and financial performance, Muilenburg said.
Summary points, paraphrased:
- Demand remains strong for the 777 and 777X. Orders YTD for the Classic is 44, within the 40-60 range needed to fill the production gap. Sold out in 2016, half sold out in 2017 and some slots sold in 2018.
- 290 787s delivered in the program, including 34 787-9s. Production is now balanced between the 787-8 and -9.
- Development of the MAX is on track for delivery in 2017. Upward pressure for production to exceed 52/mo, but no decision yet to go beyond this rate.
- We will sharpen our strategies to win, profitability execute our record backlog.
Greg Smith, CFO:
- We have added the necessary engineering and support staff to finish the tanker work on schedule.
- We continue to expect 787 program to be cash positive in 2015. We made further progress to reduce unit costs, by 35%.
- 787 deferred production costs will continue to increase through third quarter before a “healthy” decline in growth of the costs the fourth quarter.
- Returning cash to shareholders remains a top priority.
- GS: We had good performance across the board on margins. Having said that there are still a lot of productivity plans in progress.
- DM: We like the path we’re on and the direction we’re going. The challenge is to execute commercial program profitability and return cash to shareholders; this is the biggest opportunity. Tanker is a risk. Our cash from backlog gives us opportunity to invest in development programs in the future, commercial and military. Use of cash #1 priority is investment and development in the future, #2 is returning cash to shareholders, #3 acquisitions.
- GS: 787-9 learning curve is coming down nicely, costs down 30% over 34 deliveries. Lessons learned from -8 for produce-ability for -9 means -9 will be more profitable than -8. We’ve made good progress but we still have a lot of work to do going forward. As we get into next year we will see higher levels of profitability on the -9.
- DM: The tanker charge includes some anticipated costs of retrofitting the first two tankers that have already been loaded into the production system.
- GS: There is no fundamental change as to how we handle advances in our contracts. It will continue to grow, but not at the same rate. The bulk of the cash will come on delivery.
- GS: Still anticipate book:bill of around 1:1 this year.
- GS: Key thing on 777 Classic bridge is 44 firm and commitments [a clarification from earlier] this year. Feathering in 777X production in 2018, so decision on production rate for Classic will be net year. Derisking program by bringing some technologies from X into Classic.
- DM: Fuel system is the last major system to be qualified under the KC-46A program. We have found a way to execute the program and keep on schedule to deliver USAF.
- DM: ExIm reauthorization is in active discussion in Senate highway bill, we remain optimistic we will ultimately see reauthorization but remain mindful of political risk. From a company perspective this does not create a financial risk to Boeing. 15% of customers use ExIm as backstop financing. This is about long-term global competitiveness for US manufacturing jobs.
- DM: Fundamental to our business for 100 years is we’ve led with innovation and bringing disciplined innovation to the company for the future.
- DM: We remain resolute to meeting USAF schedule to deliver first 18 KC-46As by 2017.
- DM: It’s important to emphasize that we understand how important our people are [in reference to unions]. This idea of mutual respect, partnership and investing in our people is important to me. We’re equally pleased with progress in Charleston and the investments we’ve made in Charleston reflect the quality of our workforce there. The employee relationships are important.