Oct. 21, 2015: Dennis Muilenburg, Boeing president and CEO raised 2015 raised revenue and EPS guidance as a result of the strong third quarter results and he said $8bn in share buyback has been completed through the nine months.
Power on for the 737 MAX was achieved.
Extensions of the KC-46A refueling boom and refueling drogues were achieved in the quarter.
Commercial unit business environment remains “healthy” but the cargo market continues to be watched. Demand for the 737 MAX “remains high.” Given the strong market demand, “we continue to see upward pressure on production rates above the [announced] 52/mo.” But Boeing is not yet ready to go forward.
On the 777 Classic, 44 orders and commitments have been received YTD.
More than 330 787s have been delivered, including more than 50 787-9s.
CFO Greg Smith noted that a record 199 airplanes in the third quarter. He reaffirmed prediction of the 787 becoming cash-positive in the fourth quarter this year. Progress continues on reducing costs on the 787-8. 787-9 costs are reducing as well. There is a deferred production balance of $28.3bn and the rate of growth in deferred production will decline in the fourth quarter.
Operating cash flow for the quarter was strong at $2.9bn. Lowering R&D guidance $100m even as R&D expense on 777X rises.
Comments are paraphrased.
DM: Dennis Muilenburg
GS: Greg Smith
GS: Boeing continues to see deferred production costs plateauing in 2016 before coming down toward the end of the year after rate 12 for the 787 is achieved. Going to rate 14 in 2019/2020 timeframe. Looking for similar margins on today’s other wide-body airplanes.
DM: Improving productivity on 787 program is a high priority.
DM: The overall wide body market continues to be healthy, with strong passenger growth. Cargo growth is more moderated and a bit slow to recover. Replacement demand continues to be strong for narrow and wide-body. On 787, we have 800 aircraft in backlog and strong market demand. Recent EVA order for up to 24 787-10s is a good indication. We remain very bullish on 787.
On 777, we’ve been very focused on building 777 bridge. We’re continuing to fill bridge. Sold out in 2016, more than half sold out in 2017. 777X really have no peer competitor. 777X has completed firm configuration. EIS 2020 as scheduled.
We continue to see strong progress on 787 reliability. There is more work to go, we’re not done. Reliability improvements we’ve delivered to date in the field and into production are taking hold. Last 50 delivered have better reliability than earlier deliveries.
DM: We remain focused on mid-teens margin at BCA through efficiency in our factories, Partnering for Success. It’s a smart and aggressive target for the long-term. Getting there will allow return to shareholders and investment in future products.
As 777X comes into production in 2018. We’re thinking carefully how we get through transition from Classic to X, pulling forward some of the production technology for the X into the Classic to de-risk transition. ExIm Bank reauthorization could cause some customers to delay wide-body decision.
We don’t see any scenarios where we come down below 7/mo during transition.
DM: Continue to see book:bill around 1:1 this year. There is a timing issue rather than a volume issue on some wide-body orders. With a backlog of 5,000 airplanes, the book:bill annually isn’t that important to us. Could shift from one quarter to another.
China order: some are already in the backlog, some are new commitments, will be working through the contract in the coming months.
GS: Extended the block for 737 by 200, 767 by +30.
DM: For the near-term we see MAX and 787 are serving the Middle of the Market. If there is a need for the MOM, we see that as the middle of the next decade. We don’t see this affecting our R&D profile in the next four or five years.
DM: We’re doing our scenario planning now that includes market demand, information from our customers, 777X value proposition, we haven’t finalized our plan but we don’t see going below 7/mo under any scenario. We would get into the meat of this in 2018.
GS: 747 program, this has been a challenging market place. We continue to monitor this market place. We’ve got a pipeline of customers we are looking at. We’ll likely take another look at the rate early next year but for now maintaining 1/mo.
DM: The current bridge we are trying to build is a five year bridge, the depth of the bridge is in 2018 timeframe.The transition production rate, firing blanks is not a high volume proposition. These are incrementals, not a sustained activity. Flight test aircraft will be in the 2018-19 in production.
GS: The profile and key milestones on 787 deferred production costs haven’t change. All the key contributors will turn at rate 12. [Smith did not answer the question about whether a forward charge for the program or a larger accounting block will be necessary.]