Boeing Outlook: 777 rate cut, 737 hike (Update 2)

  • Due to technical problems with the webcast, Boeing ended the earnings call this morning before Q&A and rescheduled at 1pm EST.
  • The original, short post is updated with the re-do of the earnings call.
  • The PDF slide show is here.
  • See Scott Hamilton’s column on Forbes.

Jan. 27, 2016: Boeing’s outlook for 2016 disappointed Wall Street for lower-than-expected revenue, earnings per share and delivery projections, spurring a sell-off in Boeing Logothe stock by almost 10% in the first hour of trading before the earnings call.

Because of a late Tuesday night story in The Seattle Times that a production rate cut in the 777 Classic line was coming, analysts expected this news. Boeing made it official: the 777 rate to 7/mo in 2017, a figure that was telegraphed in pre-Paris Air Show briefings last year. Boeing says it is confident of maintaining this production rate until entry-into-service of the 777X in 2020.

The production of the 737 will increase to 57/mo in 2019, which was forecast by LNC last year.

The 787 deferred production costs will decline once the rate goes to 12/mo by mid-2016, but deliveries will be about the same as 2015 due to delivery timing.

R&D will be about $3.6bn, with about 75% for Boeing Commercial Airplanes.

CEO Dennis Muilenburg said reauthorization of the ExIm Bank de-risks financing requirements, as does the tentative contract agreement with the engineers union, SPEEA, months ahead of the amendable date.

Muilenburg said passenger traffic remains strong, but cargo traffic continues to slow, “but we remain confident” in the long-term recovery, with about 250 large cargo freighters needing replacement by 2019.


  • Despite current Chinese economic concerns, Boeing sees the market under-served today by 1,000 aircraft and in need of 6,000 aircraft over 20 years.
  • Current oil prices won’t deter current or new purchases.
  • The financing markets are gaining strength.
  • 2016 book:bill should be about one. Cancellations at historic lows.
  • 737 backlog 4,400 firm orders, driving rate increase in 2019 to 57/mo.
  • Transition to 777X means production rate reduction to 7/mo starting in 2017. Sold out in 2016, about 80% sold out in 2017.
  • Forecasts about 135 787 deliveries in 2016, plans on track to go to rate 12.

Greg Smith, CFO:

  • 787-9 deliveries will greatly exceed 787-8.
  • 787 program became cash positive in the fourth quarter, deferred production costs up ~$200m.
  • Deferred production rate should start declining after 787 rate 12 achieve this year.
  • Returning cash to shareholders remains top priority.
  • Lower revenue projection in 2016 ($93bn-$95bn) reflects planned transition to 737 MAX as test airplanes, airplanes built in 2016 for 2017 delivery. (This means fewer 737 deliveries in 2016–Editor.)


  • GS: Cash flow: Improved performance on 787 cash expected, headwinds include higher tax payments. Only one C-17 left to be delivered. The MAX transition will affect cash flow, but long-term view remains unchanged.
  • GS: Production rates: The 777 rates coming down in 2017 will be all deliveries, in 2018 deliveries will be down as 777X flow time integrates into the line.
  • GS: R&D will be “flat-ish” over next couple of years.
  • DM: 737: We continue to see strength, fundamental confidence in the single-aisle market. Continuing to ramp up production to keep supply and demand in balance is the right thing to do. We continue to see about 40% replacement, 60% growth on balance.
  • DM: Announced build rate vs delivery disconnect: if you take a look at this year compared with 2015, delivery guidance is down and the majority of that is the 737. There are about a dozen aircraft in that reduction that are 737 as more test aircraft and [2017 deliveries] are built in 2016. GS: Next year deliveries will slightly outpace production for these reasons. The 767 line also see fewer built rates. 16 last year, about 10 this year.
  • GS: With more 787-9s delivered, there will be more revenues, offset by 737, 767 transition, 747-8 decline.
  • GS: Did not answer a question from the Wall Street Journal whether a 787 forward loss can be avoided.
  • DM: Since we launched the MAX it’s about 50-50 in terms of orders, leader in deliveries, but did not answer WSJ question about coming back to parity to the A320neo lead of more than 1,000 airplanes. We are going to run a disciplined, profitable business, not for market share but for long-term business. We remain confident in our strategy.
  • DM: We want to set a tone of mutual respect with the employees of Boeing for the long-term.
  • GS: No charge for 777 rate decrease vis-a-vis 747, because the 747 was not as profitable as 777. (Cutting six 747-8s a year and 16 777s a year.)
  • DM: The rate 6 of 747-8 is a sustainable rate to bridge us to 2019 demand for very large aircraft freighters. About 45% of the current fleet needs to be replaced then, with 240 large airplanes that will be over 20 years old. GS: We’ve obviously got to continue to get orders through that period. We’ve got a great pipeline we’re working on. We expect the market to recover.


41 Comments on “Boeing Outlook: 777 rate cut, 737 hike (Update 2)

  1. Hey guys,

    I know traditionally that rates are talked about per month – but with Airbus shutdown time in certain parts of the world making that a bit of an iffy comparison, would it be clearer for comparing A & B to talk about nominal rates per year?

    I do remember a post by one of you on the matter, but I can’t recall the exact details.


    • @Brenden We clarified how Airbus figures its rate in a prior post, and this was news to us. We assumed Airbus followed the Boeing model: take a monthly rate and multiply by 12, then subtract for vacations. Airbus told us they set an annual rate for deliveries and then divide by 12 to get that number. There will be some months (August, typically) in which it may not produce the full “monthly” rate but the end game is the annual target.

    • Ive just looked at the employment outline for the UK airbus factory done by a recruitment agency.( Blue Arrow)- ‘Working at Airbus’
      These are relevant parts:
      “In a full leave year (1st January to 31st December) a full-time employee is entitled to 175 hours annual leave, plus 8 bank holidays. ( Bank holidays are UK term for national holidays)
      The client operates fixed holiday periods (shutdown), currently for two weeks in the summer and three days between Christmas and New Year. These dates will be communicated to you upon commencement and must be taken as part of your holiday entitlement.

  2. I just divide annual by 12 to come up with the numbers.

    Boeing has a hiatus at Xmas/New years area so they are impacted as well.

    It really does not matter what the monthly rate is though it is kind of a mental thing I believe that monthly works better to get insight.

    So while I do it I don’t take it seriously, 12 months takes out the dips and valleys and gives a good cross comparison.

    It also reflects when ramp up or down is taking place any other time that end of the year.

  3. It would be very helpful if we could get an estimate as to how much 747-8 development loss exposure still remains. ($4B estimated development cost less $885M and $400M per year estimated write-off x 4yrs. equals $1.515B estimated current exposure. If they take the inevitable final write down at the end of ’16, they’re still looking at near $1.1B.) Does this look “right”? Thanks. P.S. Surely Boeing could use all that committed manufacturing space more productively than turning out .5 747-8 per month!

    • “$4B estimated development cost”

      How good is that estimate?
      There was a lot of fore and back on that project
      also difficulty in syncing what was actually built, what was once drawn on paper/mag tape and what is in the Catia designbase now.
      ( Obviously the pronounced delays make their impact elsewhere in the financials )

  4. Probably the most single interesting item is Boeing will make FEWER aircraft this year than last.

    Big surprise is the 737 production will go down as they cut into the 737MAX.

    Makes not sense to me as they opened a third line to do that and should not have any impact on the other two.

    • Regardless of a separate production line for MAX, wouldn’t the build rate be limited by suppliers? For example, if Spirit is producing 42 737 fuselages a month, then Boeing can only build 42 737s (NG or MAX) per month. So each MAX built in 2016 will be one less NG delivery possible this year. Just as Airbus could have delivered more A320s in 2015, but there are now over 20 neos dotted around TLS (mostly awaiting their engines).

      Obviously, they’ll ‘catch up’ once MAX is certified and deliveries start in 2017.

      • It makes some sense, but if Boeing has 3 lines going then I would think they had it lined out with Spirit et all to support that.

        Silly me, but otherwise it would be a major ramp up.

        Still odd to deliver fewer over the whole year, but then as noted flight testing and its deliveries that count, not made.

        How many MAX sitting around for the year while they do their testing?

      • “”Summs of stuff built””

        didn’t think about that.
        ( and this tides over to Airbus : with only CEO deliveries already fitting the rate projection actual production rate must be higher as NEO frames are already accumulating.)

  5. 787 needs 12 per month to cover bring deferred down, and Boeing needs to sell more in the near term to fill those slots, 6 months ago Norwegian ordered 787s for delivery next year. News to me that they need 12 per month, though there was some suggestion that they needed higher rates but, is there a market for 25 per month A330NEO/A359/787s?? Looks questionable to me.

    Freighter market prediction looks like pie in the sky.

    • “787 needs 12 per month to cover bring deferred down….”

      I find that hard to believe unless Boeing is working in some “Rush Orders” for select customers willing to pay a substantial premium for early delivery. Historical Production Data shows that once a single line becomes well practiced in the assembly of a particular model and units/year are above 30-or-so, then there is no inherent unit-cost benefit per aircraft of producing say…100 vs 144 planes a year.

      In short, a single line fully utilized is about as efficient as it gets on a per-unit basis.

      • Boeing is strongly pressured by short term availability of the A330. The other product differences are not big enough.
        i.e. they must burn through their backlog to open up booking interest.
        which also will look good on the revenue side.:-)
        How much of that revenue can be sluiced into reducing deferred cost is more open imho.

  6. 10 Widebodies a month is amazing, 12 787s a month will no doubt be reached in the not too distant future, reaching 14 will be unprecedented I think.

    If Airbus goes to 10 and restores the A330 also in that direction, A & B combined have around 40 / 480 a year. I wonder how RR being present on most of them can have any problem..

      • The 135 included a number of re-worked frames. Boeing delivered more 787s than they manufactured in 2015.

        Slowing 747 production, fewer re-worked 787s and fewer 737s (due to some MAX builds) is why they expect to deliver fewer planes this year than last.

        • Only 1 early build -8 frame and 3 test -9 frames were delivered in 2015. So, Jimmy is correct about the record because 131 new build deliveries (10.92/month) is still the highest of any widebody in history. Boeing rolled out 127 new build frames (10.58/month) in 2015 which I believe is also unprecedented.

          Boeing delivered 4 more new build 787’s in 2015 than they rolled out because they are still recovering from 2014 where they delivered 9 less new build frames than they rolled out. This is primarily because of the wing crack issue discovered in 2014. New build frames were stacking up on the flight line.

          Just for context, in 2013 Boeing delivered 1 less new build frame than they rolled out, but that’s because they rolled out the 3 787-9 test frames that year.

          In 2016 Boeing is not planning on delivering less early build frames than in 2015. They plan to deliver at least one, LN-22, and perhaps up to an additional 5 terrible teens. I think Boeing is just being conservative in their estimate 0f 135 so that they won’t fall short. If the rate break to 12 is executed exactly at midyear then that would mean 132 frames for the year. Since the delivery rate break will always lag the roll out rate break, the deliveries will be less until the early build deliveries are added on. Thus, about 135 for 2016.

          • Yes the delivery rate does lag the build rate, it seems the assembly time is much shorter now than the post build work ( and paperwork !)

      • @jimmy Some of those 135 delivered were actually re-work airplanes, not freshly produced ones. Rate 10 equaled 120 planes. The rest were holdovers from the long-running snafu and catch-up.

  7. What are the 2016 delivery targets for all the Airbus and Boeing models, and the CSeries?

  8. Iran finalized a Whopper order for 118 Airbus Aircraft just minutes ago. According to the Airbus press release:

    “The agreement for 118 new aircraft signed by Mr Farhad Parvaresh, Iran Air Chairman and CEO, includes 21 A320ceo family, 24 A320neo family, 27 A330ceo family, 18 A330neo (-900), 16 A350-1000 and 12 A380.”

    The number of A350-1000s ordered I find to be a particular bright spot, even though it does seem to foreshadow the end of hope for many more large 777-300ER orders.

    • Thanks to this last order, and the large Chinese A330 order last year, Airbus will probably increase the production rate of the A330ceo from 5 to at least 7 units per month. Also, as the A330neo will EIS in less than two years from now, A330 production during the transition to the neo can be kept stable at 7 or 8 units.

      In contrast, the 777X won’t EIS until 2020 – and Boeing won’t be able to immediately ramp up to five 777Xs per month. Even at 5 per month from 2018 onwards, they’re in need of an additional 100 77W/77F sales to maintain output of five 777s per month through 2022.

      • But can suppliers keep up? Remember every aircraft that gets built has 20% more seats than originally expected, and that doesn’t even include refits, and that would appear to be only part of it.

      • No thats what will be offered when their ambition comes face to face with their cheque book- who will provide lease or finance ( ExIm wont touch this)
        Plus they are available like immediately

      • 118 new aircraft. I guess Airbus just didn’t like to mention the fact that there are some old A340 on the books.

        Maybe 9 additional used aircraft of different types. According to fuel prices a cheap A340 is a nice to have. Ask Lufthansa.

    • I can think of at least 7 possible “out and backs ” from TEH: LHR, PAR, FRA, PEK, NRT, PVG, and DEL or Mumbai that could probably ramp up pretty quickly. Possibly JFK and LAX, if there’s further US-Iranian diplomatic progress. And then there’s the whole Haj trade. Still, an order of 8 747-8Is might have been more reasonable and made more sense on jumbos, no? (Must have been a whole “fleet prestige” thing, I guess? 12 A380s is a colossal order!)

    • being massively hampered != train wreck

      train wreck would have been for internal reasons

      but Iran was hampered unfairly from external sources.
      Some of the stuff the US did is comparable
      to letting someone drown just because you don’t like him.

      • Actually they were hampered quite fairly but delaying the nuke program paid off quite handsomely. I guess mushroom clouds over Tel-Aviv can wait a decade or two now they are flush with cash!

    • Interesting quote in that article…

      “Iran Air’s Parvaresh told me in 2014 that his engineers, who have worked on 747s for more than three decades, would “prefer to have” 747-8s in the fleet.”

      Of course how often do engineers factor into plane buys?

  9. “I guess mushroom clouds over Tel-Aviv”

    That was imho always a faulty assessment.
    Actually a carefully crafted defamation campaign.

    The US always had and Israel in more recent times has outspoken proponents of employing nuclear bombs to adjust diplomatic problems and commercial obstacles.

  10. Knock off the Arab-Israeli stuff. This is not a political forum.


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