April 27, 2016: Boeing delivered better financial results in first quarter that reflect “underlying strength” in the company, said Dennis Muilenburg, CEO of The Boeing Co., on the first quarter earnings call.
Excluding charges of $243m pre-tax charges on the KC-46A tanker, earnings per share equaled last year. Charges related principally to engineering change to the completed tankers, required after flight testing began. Muilenburg said the program remains “on path” to meet the commitment to deliver 18 tankers by August 2017. With a potential program of 400 deliveries over the life of the program, Muilenburg said the program should be profitable.
The business environment for commercial airplanes remains healthy, he said. Traffic has grown 8% so far this year, according to IATA, Muilenburg said. Load factors remain at record levels of 80% and daily utilization is about nine hours. Global air freight is off 2% so far this year, but Boeing expects freight traffic to grow about 3% this year.
Low oil prices haven’t change customer fleet plans, he said. Deferrals or cancellations are at about 1% vs historical 6%, Muilenburg said. This reinforces Boeing’s planned ramp up in deliveries to well above 900, he said.
There are now 4,400 737s on backlog. The production bridge between the 737NG and the MAX remains oversold, he said.
Boeing is sold out of production slots for the 777 Classic in 2016 and 80% sold out in 2017. The sales target is 40-50 this year, with 11 sold so far.
Boeing began building the 787 at the 12/mo rate.
Pricing on the 747-8F remains under pressure due to softness in global air freight. The 747-400F replacement cycle begins in 2019. In the meantime, demand will remain soft.
Muilenburg said that Boeing will continue to “play offense” in the competitive market by reducing costs across the entire enterprise.
Operating margins of Boeing Commercial Airplanes, just over 7%, were impacted by the BCA share of the tanker charge, plus development of the 777X and other factors, said Greg Smith, CFO of The Boeing Co. Smith said 787 deferred production rose at a slower rate due to the shift toward 787-9 deliveries. Delivery of 787s at the 12/mo rate will begin in mid-year.
Operating cash flow will increase as the year goes forward, Smith said. (Note: historically cash flow is less in 1Q than in other periods.–Editor.)
Boeing reaffirmed 2016 financial guidance. Focus remains on increasing production, execution and cost control.
Muilenburg said Boeing will continue to build “strength on strength.”
Quotes are paraphrased.
DM: Growing the services business across the enterprise is one of the top priorities for Boeing. We have significant opportunities to grow in that space. We have opportunities in primarily organic investment to leverage deep OEM knowledge. This represents significant top line and bottom line growth.
GS: Extended the 737 accounting block by 200 units, related to the MAX, with a favorable, slight impact.
DM: One of the reasons we’re confident in increased production rates is that we factored in historic deferral/cancellation rates. If we were to see these begin to creep up, we already take this into account when setting new rates. We aren’t seeing any signs of creeping back up to the historical 6% rate. We look at this every quarter. Ramp ups are not decisions we take lightly.
GS: 787-10 commonality with the 787-9 was a key factor in going into production. Commonality is north of 95%. There will be a very smooth, deliberate introduction into the system for the -10.
DM: Effort in services business is viewed as a growing market place, not a zero-sum game that will hurt suppliers.
DM: We’re anticipating a book:bill of about one this year (ie, around 740 orders-Editor). Primary demand will be for 737. Wide-body not as strong. We have about a dozen or so “very significant” campaigns underway for 777 Classic.
DM: We continue to have very good dialog about needs (relating to potential 737-7X). As we take a look at the MAX 7, that is an area where we are having active discussions with customers. It’s too early to make any decisions. It’s viewed very favorably by our customers.