BRG, which agrees with other aerospace analysts that Boeing stock is priced on free cash flow, sees FCF falling beginning next year. Buckingham predicts 737 production rates—which Boeing wants to boost to 57/mo to support FCF—will be short-lived.
Buckingham sees 777 Classic delivery rates dropping from Boeing’s target of 3.5/mo to “bottom out” at 2/mo.
Weak orders for the 787 means Boeing won’t increase production rates for the 787 from 12/mo to 14/mo. BRG predicts that in 2019 Boeing will announce a rate reduction from the current 12.mo to 7/mo on one production line, and this line will be only in Charleston (SC).
Boeing VP-Marketing Randy Tinseth speaks tomorrow at the annual Pacific Northwest Aerospace Alliance conference in Lynnwood (WA). Tinseth is always the eternal optimist in his presentations. We’ll see if he addresses anything in BRG’s bearish report.
Boeing guided to approximately a 1:1 book:bill this year during its year-end earnings call last month, or about 648 sales. BRG believes Boeing will be closer to 0.5:1 and a poor showing at the Paris Air Show in June will be a negative catalyst for the stock price.
With only 23 orders for 777s in 2016, BRG thinks Boeing won’t be able to achieve the 42 orders needed to sustain a delivery rate of 3.5/mo. Accordingly, Buckingham predicts the delivery rate going to 2/mo by 2019.
Likewise, BRG doesn’t see 737 production rates maintaining the planned 57/mo for even two years. Buckingham pegs the 737 market share at just 39% when factored against not just Airbus but also Bombardier and COMAC. Airbus has 54% of the backlog and BBD/COMAC 7%, BRG figures.
The weak sales will prompt Boeing to launch a New Small Airplane (NSA) by 2022, possibly with Authority to Offer (ATO) as early as 2021. (This would be just one year after the entry-into-service of the prospective 737-10.) Accordingly, BRG sees 737 production declining after 2020.
The most eye-opening prediction is that weak sales for the 787 could prompt Boeing to reduce, not increase production rates to as low as 7/mo after 2020. This is the most bearish forecast of any analyst, some of whom see a rate reduction to 10/mo. LNC previously indicated its forecast of 10/mo after 2020. Boeing doesn’t see “any scenario” where production will fall below 12, the CEO said on the year-end earnings call last month.
Ominously for the Seattle area, BRG thinks the 787 production at 7/mo could be only at the Boeing Charleston plant. (Assembly line workers will vote Wednesday whether to rejoin the International Association of Machinists union. If they do, this could influence production decisions between Everett and Charleston.—Editor.)