Dennis Muilenburg, CEO The Boeing Co.
July 27, 2016, © Leeham Co.: Boeing officials termed charges against the 787, 747-8 and KC-46A as the right course while reaffirming the underlying strength of the company.
CEO Dennis Muilenburg said the charge against the 787 was the right decision to reduce the financial risk going forward.
He also said the write down of the remaining deferred production costs of the 747 significantly de-risk the program. Boeing reaffirmed its belief in the future of the program, despite challenges with the cargo market.
Despite continued charges against the tanker, Boeing saw the first flight of the first production aircraft during the year.
Continued cargo weakness
Muilenburg said that the cargo market remains weak, with demand down 1% YTD. “This segment of the market remains challenging,” he said.
He said that overall demand is such that Boeing will produce more than 900 airplanes a year by the end of the decade.
For the full year, Boeing targets about 40 777 orders. There have been eight net orders.
Boeing sold out about 60% of the delivery slots in 2018 at the planned production rate of 5.5/mo, Muilenburg said. The slots remain at 80% sold out in 2017, which has held steady for about a year.
Boeing continues to plan for increased 737 production rates of 47/mo in 2017, 52/mo in 2018 and 57/mo in 2019. Despite the increased rates, Muilenburg said Boeing remains oversold.
Greg Smith, CFO of The Boeing Co., said the company expects to complete $8.5bn in stock repurchases over the next two years. Boeing repurchased $6bn in shares YTD.
Smith said the company remains committed to returning money to shareholders and investing in new development and de-risking the company.
Quotes may be paraphrased.
- The accounting block for the 767 program has been extended, though Boeing didn’t say by how much. 787 deferred production is improving, with the 787-9 and 787-10 leading the way. “It’s all about cash,” said Smith. “The fundamentals of the 787 cash program remain intact.”
- The rescheduling of supplier payment terms is back to the fundamentals of how Boeing manages its capital, Smith said. Payables have gone from daily to twice a month in keeping with industry standards. Boeing wants to get this to quartile payments, which Smith also labeled as industry standards. Muilenburg said this is not a one-time event, but part of a long-term plan.
- There are now 60 airlines for 2,200 aircraft enrolled in services agreements. This is a long-term growth in the services business.
- On 777, we understand the reality of where we’re at. The fact is YTD we have net orders for eight 777s against a target for 40. The wide-body market is clearly a challenging place right now. In case orders don’t materialize, we’re going to keep supply and demand in balance. Regardless of how the scenario plays out on 777, we will still be producing over 900 airplanes by the end of the decade. In the long-term, the wide-body demand is still attractive. In the 2020 decade, there will be a large demand for replacement aircraft.
- Muilenburg said BCA margin goals remain toward double digit next year. There is still work to make that sustainable. Toward the end of the decade, the goal remains at mid-teen. Improving productivity and cutting costs, block extensions on programs are accretive to margins as well. We still have a lot of work to do across the supply chain. We will be relentless there as well. Smith added that we’re looking at market-based across the board, internally and externally. The majority of this is outside the company. “This is a clear and enduring focus for us,” Muilenburg said. “We’ll match production to demand” for the 777, said Smith.
- There is work to fill out to rate 14 on the 787, Smith said. [This means more orders are still needed.—Editor.] Going to rate 14 would add six months to deferred production costs. Rate 14 us an end-of-decade target. Manufacturing commonality between the 9 and 10 is north of 95%, says Muilenburg.
- 787 is sold out through 2018, with a few positions open in 2019. 2020 open, Muilenburg said.
- 787 broke even on a cash basis on a unit basis late last year. Mix is a big play going forward. Dash 9 and 10 are big drivers going forward. [Note no reference to -8.-Editor.)
- Muilenburg said entry-into-service for the MAX is probably going to be in the 1H2017 rather than 3Q2017. This is a good example of how we can and should perform, he said. This is about disciplined innovation, on cost and on schedule. We’re taking lessons learned from MAX and deploying them into 787-10 and 777X.
- Muilenburg said Boeing still targets a 1:1 book:bill this year. The market is more favorable to narrow-body this year. There is no need to make “drastic” changes to pricing for market share. There is some hesitation to buying wide-body airplanes but the value proposition holds up “very well.”