June 2, 2016: Boeing is not discovering more technical issues with the KC-46A, but recent issues relating to the refueling boom and wing pods are being worked through while concurrent production progresses.
“As we discover things in flight tests, we have to roll them into the airplanes. This will be a wide-body program for decades,” he said, forecasting sales of 400 tankers, said Dennis Muilenburg, CEO of The Boeing Co., speaking at the Bernstein Thirty-Second Annual Strategic Decisions Conference 2016.
Muilenburg said the single-aisle commercial sector is competitive but Boeing isn’t engaging in a pricing competition that is unusual and not one “where we have to make bad decisions for market share because of the backlog.”
He said Boeing wants to have pricing headroom when it’s needed, but Boeing won’t chase market share.
Muilenburg said Boeing will return commercial airplanes to double-digit profit margins next year, with a target of mid-teens by the end of the decade.
Doug Harned, the Bernstein aerospace analyst, asked Muilenburg how Boeing will achieve this lofty goal.
Muilenburg said he believes in setting a tough, high bar, calling this an aspirational goal. Cutting costs, evaluating more than 2,000 ideas to cut costs through its Partnering for Success program, shifting to the 787-9/10 vs the 787-8 (“they are easier airplanes to build’) and other initiatives are elements to achieve the mid-teen margin.
777 Classic Bridge
Muilenburg said this is “one of the most important risks” Boeing is trying to manage. He reiterated the need for 40-50 sales a year to bridge the gap. There have been 12 sales this year and there are about 12 “credible” sales campaigns underway.
There will be six 777X test airplanes in production in 2018. Increased flow time in 2018 means there will be actual production of the Classic of 5.5/mo.
“This is not without risk and we have work to do to fill out the bridge,” Muilenburg said.
“We anticipate margins holding up pretty well” on the last off the line aircraft, he said. There is market hesitation right now because of a weaker demand for wide-bodies rather than a need to cut prices. Automation intended for the 777X is being integrated into the Classic line to cut costs.
787 Production Rate
Muilenburg repeated the plan to go to a production rate of 14/mo by the end of the decade. This depends on incremental sales in campaigns currently underway. “We still have time as to when we have to make that decision,” he said.
Deferred production inventory will plateau this year, Muilenburg said. The inventory growth will further flatten in the second quarter and begin to decline in the second half. Seventy percent of the deferred production is based on in-place pricing. Cost cutting amounts to another 20%.
“That is one of the biggest cash levers we have” in the next three years.
The development is going “very well,” Muilenburg said. More than 400 flight test hours have been achieved with four test airplanes. Delivery may be in the first half of next year rather than the third quarter.
Muilenburg reiterated Boeing’s view that the heart of the market of single-aisles is around the MAX 8. The MAX 9 is entering the production system, but the MAX 7 has yet to do so. He said prospects of a MAX 10 remain in discussion with customers. The research and development profile of a MAX 10 or a Middle of the Market airplane won’t be until after the 777X, with an EIS of 2024-25, he said.