Boeing assumes 787 rate goes to 14/mo, but still working on it


Dennis Muilenburg. Photo via Google.

July 26, 2017, © Leeham Co.: Boeing posted strong earnings in the second quarter, with officials seeing continued strong demand, a recovering cargo market and strong commitment to returning cash to shareholders.

Financial guidance for the year was boosted. Boeing assumes that it will go to a production rate of 14/mo for the 787 program but there is still work to do to obtain the orders.

Healthy demand

“We continue to see healthy demand,” said Dennis Muilenburg, CEO. Cargo traffic is seeing a healthy recovery, he said. He sees less cyclicality going forward. There is more balance in demand between replacement and growth for new airplanes.

Muilenburg said there is a solid demand for increasing production rates of the 737 lines. The 777 for 2017 is sold out. The line is now in an oversold position with orders and commitments in 2018 and 90% sold out in 2019, but more work is needed to fill out production.

He said that efforts continue to support 787 production going to rate 14/mo by the end of the decade, but he did not indicate when this decision will be made.

Cost performance on the 787 program continues to improve, said Greg Smith, CFO, with further reduction in the deferred production cost.

Since 2012, Boeing repurchased more than 200m shares of stock.

Continued cash commitment to shareholder stock buyback reflects continued confidence in the long-term outlook of the company, Smith said. Boeing will return 100% of free cash flow to investors.

Questions and Answers

Dennis Muilenburg, CEO

Greg Smith, CFO.

Quotations are paraphrased.

GS: We still expect year-over-year growth in cash growth through the end of the decade. The ramp up of 737 production and 787 progress are drivers. We expect to see incremental margin improvement over the next several years.

Part of our plan for the company is to have a non-cyclical business, a stable cap-ex and R&D profile for the rest of the decade.

We have hit the peak of cap-ex spending on 777X.

DM: Extension of the accounting blocks, cost control with suppliers and overhead are elements to achieve for the target of 15% margin.

(Muilenburg did not specify which programs he referred to for the accounting block extensions. While the 787 is the high-profile accounting block program, the 737 program also could see block extensions. The 777X block won’t be announced until the first deliveries in 2020.)

GS: We’re continuing to talk with customers about the Middle of the Market aircraft. We see a potential market of 2,000 to 4,000 aircraft. We’re working through the details of the supporting business case and leverage the technology of previous programs. We’re also looking at the manufacturing process with digital tools and the life cycle.

We’re still looking at entry into service around 2024-25, so we have time to do the work. The R&D and cap-ex will feather in very nicely on the backside of the 777X.

GS: We assume we go to 14/mo on 787, but we still have some work to do.

DM: We see a lot of energy with leasing companies. This points to overall market strength. We continue to see some hesitancy in the widebody.

DM: the market supports taking the 737 line to 57/mo.

DM: We’re beginning to scratch the surface on digital aviation solutions.

DM: Targeting to hit $50bn level in Global Services over the next 5-10 years. We see much of the growth being organic investments. Acquisitions or partnerships would be complementary.


33 Comments on “Boeing assumes 787 rate goes to 14/mo, but still working on it

  1. Think most out there know I prefer the A350 from a pax point of view, but if Boeing can up their production rate it could dilute the 350’s shine for future orders.

    A thought that crossed my mind. If Boeing could build a 787-8.5 (stretch between the -8 and -9) with the 64K-Lb engines, and range of ~6000Nm, it could be a serious challenge to the Airbus in the upper end of the MoM market, especially if they could shave tons off the OEW.

    Orders from such an aircraft could add to the 787 production line increase requirements.

    • A 787-8.5 would come in around 124-125t. The A339 is comes around 126-128t. Do we think than a 2-3t weight advantage would be sufficient to offset the significantly lower purchase price and higher passenger capacity of the A339?

      • I am not qualified to answer that but for starters the 787 wing mostly likely more efficient than that of the 338/9 and with 64K-lb engines burn less fuel than that of a engine rated at 72K-Lb?

        Unit cost of the 787 may came down at higher production rates. I prefer the 33X’es, but airlines seems not, why?

        Low prices of many things are often short term gain, long term pain.

        • Any reduction in production costs will be going into Boeings pockets , not the customers, even if the deferred production costs are all ‘accounted for’.
          To get the sort of reduction in weight for a 787 lite would require a smaller wing and the engine comparison, well RR offers a 67k thrust version of its Trent 7000 engine for the neo.
          LNR had previously said the 787-8 is significantly different to the favoured larger version 9/10 and is on its way out of production, no new orders for a long time

          • It is apparent that Boeing has “lost interest” in the 787-8, think the real reason is most likely to generate a market for the larger of the potential 797’s?

          • The reason is no mystery, there is only around 50% commonalty between the 8 and the other models unlike the 9 and the 10.

          • Hi Geo, I don’t know much about these things but where are the main differences?

            My stupid mind then tells me a 787-“8.5lite” should then be say a ~3m shrink of the 789 with it’s own lighter wing box and smaller wing, maybe 55-60K-Lb Ultra fans, range 6000Nm?

            Know it won’t come cheap but maybe cheaper than a 270 seat MoM and add to the 787 program as well as production line.

          • Just been reading Bjorns article on the “787 payback”. Can’t see Boeing spending money on some sub variants soon. Focus will on reducing productions cost, increase production rates through higher sales.

            No wonder the keep going with the 737’s, a cash cow. Wonder what happens if their other cash cow, the 777ER’s dry up? Maybe part of Boeing’s strategy to phase out the 747’s in order to get more 777ER and F orders?

  2. I can imagine a part of what is going into the decision of this rate increase is the availability of Titanium in the market. Boeing will encounter stiffer competition for what Ti is available by the limited mills that deal in aerospace grade titanium and, as the lead time for some commodities is greater than a year unless you are willing to pay a significant premium so, another side of this question is, would Boeing’s part suppliers even be able to support an increased production rate at this point in time without causing the cost of production to increase just as it is starting to become profitable?

    The 787 is a heavy plane and a significant % of that weight consists of Titanium and in order to support the increase in production rate growth of ~14% by 2019, then we’d have to be seeing orders against Titanium increasing at that roughly that rate now.

    There’s currently only so much titanium in the world available in any given year and with a guaranteed increase in the US military budget each year, the rise of additional commercial aerospace programs (with ones in China and Russia theoretically getting first pick at material coming from their mills) it is going to be harder and harder to secure additional material to support an increase in production rate that is currently dependent on the availability of that material.

    So unless Boeing is starting to hoard Titanium somewhere, I just don’t see the production rate increasing before start of 2020

  3. It is very interesting to read “We see a potential market of 2,000 to 4,000 [MOM] aircraft.” Not too long ago they talked about 5000. Anybody know why they changed the estimate again?

    • The MoM “story” remains a real ding-dong affair and I think that’s why its fascinates us and OEM’s can’t get to a decision.

      Every second day I think I had it worked out. My call for today will be is that its is initially a single size aircraft with around 240 seats (2+ class) with sub-variants;

      1)4500Nm, 40K-lb engines, 2)an ER with higher MTOW, 40+K-Lb engines, 6000Nm range and 3)a high density seating model along the lines of the MAX200?

      Between this lot I can see an initial market of around 2000?

      The larger single aisles will cover the 260 seat market will be by variants of the 787 and A330.

      • 260 seats, single aisle-no way. Among the many problems is the fact that people carry on their luggage these days. Unfortunately the first realistic evacuation test with people taking their bags with them will be with a real fire.Even people who see the point seem to believe that it’s perfectly all right to arse about retrieving ones passport.

        • Its to be 2-3-2 not single aisle, any thing longer than the 321 (maybe +3 to 4 rows) for single aisles only if you have rear (two) door deplaning.

        • I always carry my passport and bankcard in my left top pocket, the rest you don’t need.

    • It’s all just ballpark estimates for 20 years. What are the realistic upper and lower bounds for single aisles and twin aisles above 200t? Assuming the ratio of 3 to 1 for single aisle to twin aisle holds steady regardless of the MoM: Single aisles 24,000 to 36,000, twin aisles above 200t 8,000 to 12,000. The MoM, being less definitive, could be between 2,000 and 8.000.

  4. I think a clue is given in the quote given by Boeing to LNC a while back about the DPC on B787…

    ‘The profitability calculation is derived from the accounting quantity, not the other way around. As we line up more sales and have visibility of future costs for any airplane program, the block for that airplane will be extended and the margins adjust– it is not related to concepts of ‘breakeven.’ And the program is profitable, so it follows that the accounting quantity can’t be ‘the breakeven number’

    the last sentence, ‘and it is profitable’ is a bit like a prophecy and as such any action that Boeing takes is in line with that prophecy.

    • It doesn’t matter, as long as Boeing can continue selling the 787 at a per plane profit and cashflow is always positive, as it was even in the dark days of the 787 snafus – thanks to the 737 and 777 cash cows. At a certain point they may need to close the 787 line and write off the remaining accrued costs, but that’s decades away. Something has to give of course and that was the war chest they would have built up from 737, 777 and 787 sales to fund further developments like the 737 replacement.

      • Some very valid points, accounting principles and other things, but the reality is they are now making (US$16M) profit for every 787 sold, nothing wrong with that.

  5. Is it feasible for Boeing to reopen the 757 line with new wing, engines, and avionics? rather than develope a whole new aircraft to compete against the longer range A321/A322?

    • Would be nice to see a new 757 but the reality is that airlines response to it could be like it is to 330NEO and not worth the effort and money. The “shelf life” of a warmed up old design is also not great.

      The “797” is a done deal in the minds of many airlines, think Boeing is now in a position that they basically can’t pull out of it without losing a lot of credibility.

      Guess they are currently sculpturing a design that is the best balance between development and production costs and what airlines want and are prepared to pay?

    • the 757 is tremendously out of date in its aerodynamics, structures and systems. restarting the line for a 757NEO just puts lipstick on a (very solid at the time it was designed) pig of an airplane.

      the OEW of a 757-200 was >20K lbs heavier than an A321 with an exit limit 1 seat less than an A321. it’s wing was designed in the late ’70s, it’s nose in the late early ’50s.

      in short it would not be competitive.

      any new aircraft to fill the NMA/MOM requirement has to fit ~270 at cattle car/200 TATL, be no more than 5 tons heavier than the A321NEO-LR OEW with a _real_ 4500NM range (i.e. full with IFR reserves)

      • Actually , the 57 does NOT have the 07,27,37 nose/windshield but it does share the (too narrow) cabin width with those which is another reason (as if one was needed) to not bring it back.

  6. @Klaus Girschick

    1- “We see a potential market of 2,000 to 4,000 [MOM] aircraft.”

    2- “Boeing estimates that sales could reach between 4,000 and 5,000 middle-of-market jetliners as airlines find new routes for the planes.”

    The contradiction is not as big as it appears, for statement 1 sees the maximum at 4,000 units whereas statement 2 sees it at between 4000 and 5,000.

    The problem is not market predictions. There is definitely a market for such an aircraft. The problem is that it is impossible to build a cheap and economical aircraft for that market segment. And the reason is this: It sits in the twilight zone between single-aisle efficiency and twin-aisle efficiency. It is a natural gap that cannot be filled optimally.

    The MOM is a folly and I doubt Boeing will ever build it. In the meantime they seem to think that NAS stands for Not Anytime Soon.

    • I meant NSA, which for Boeing seems to mean No Such Aircraft.

      • Could there be a 737MAX “Mark2” with undercarriage upgrades to take larger fanned engines before an NSA?

        On something different, there are currently numerous large Lithium exploration and development projects around the world, if CFRP’s are the future, why?

        More supply, lower prices, was just thinking about the 777X (and MoM).

Leave a Reply

Your email address will not be published. Required fields are marked *