Leeham News and Analysis
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Analyst reaction to Boeing investors day
May 12, 2016: Analysts were largely underwhelmed in their take-aways from the Boeing investors day. Their reactions:
Bernstein Research (Outperform)
| Boeing held its investor conference this week, including tours of Everett and Renton facilities. Overall, we viewed the event as positive, with management emphasizing strong free cash flow growth through the decade, with potential for margin expansion.
Consistent with our analysis, the 737 and 787 are described as sold out through 2019, with a decline in 777 deliveries in 2018. The 787 should serve as the key driver of rising free cash flows, along with lower capex. Margins should be aided by flat R&D. Cost reduction is key to Boeing’s margin goals, which should be helped by a large backlog with prices set. We are more positive on services at this stage, which is a key focus. Defense is now expected to see modest growth. We rate BA Outperform, TP $184. |
Analysts skeptical going into Boeing investors day
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Introduction
May 12, 2016, © Leeham Co.: Boeing executives faced skeptical aerospace analysts at its annual investors day yesterday in Seattle.
Presentations by Dennis Muilenburg, CEO of The Boeing Co., Chairman, President and Chief Executive Officer, CFO Greg Smith, Ray Conner, CEO of Boeing Commercial Airplanes, and Leanne Caret, CEO of Boeing’s defense unit, didn’t appear to have any immediate impact on the stock price for those listening in on the webcast. Stock was flat during the day. Notes from the analysts attending in person won’t be issued for a day or two.
We met with seven analysts on Tuesday, before and after their tour of the Everett (WA) wide-body plant facility to gauge their points of interest going into the investors day yesterday. We also talked with some of them on Wednesday after the presentations.
Summary
- Skepticism was high over how Boeing believes it can recover the $29bn in deferred production costs on the 787 program. CFO Smith addressed this during his Wednesday presentation.
- Boeing finally conceded the 777 Classic production rate will come down, to 5.5/mo by 2018. Officials initially claimed the rate would remain at 8.3/mo to the entry-into-service of the 777X, later lowering to 7/mo from next year.
- There is a belief that Boeing’s product strategy is now on the defensive to Airbus. BCA CEO Conner believes otherwise.
Boeing investors day: Conner: today’s hard decisions assure future
May 11, 2016: Decisions Boeing has made today have been hard, but assure Boeing will be around another 100 years, says Ray Conner, CEO of Boeing Commercial Airplanes. “We compete every day with aggressive competitors.”
Note: Boeing is holding its annual investors’ day (really a half-day) today, with presentations by: Dennis Muilenburg , Chairman, President and ChiefExecutive Officer, Greg Smith , Chief Financial Officer and Executive Vice President of Corporate Development & Strategy, Ray Conner , Vice Chairman and Commercial Airplanes President and Chief Executive Officer and Leanne Caret , Executive Vice President and Defense Space & Security President and Chief Executive Officer. We’ll report on the presentations by Muilenburg, Smith and Conner, but not the DSS unit.
Conner sees continued growth in aircraft demand. Boeing’s backlog continues to grow, but Boeing also continues to monitor global conditions. But compared with 2001 after 9/11, Boeing’s backlog is more diverse in the world and among the type of customers. Deferrals, cancellations and skyline adjustments are “way, way below historical averages.”
Boeing investors day: Smith: becoming a global industrial champion
May 11, 2016: Boeing strives to be a global industrial champion, not just against its peer group, says Greg Smith, the chief financial officer of The Boeing Co. Boeing has a continuing commitment to returning cash to shareholders, repurchasing 150 million shares, he said.
Note: Boeing is holding its annual investors’ day (really a half-day) today, with presentations by: Dennis Muilenburg , Chairman, President and ChiefExecutive Officer, Greg Smith , Chief Financial Officer and Executive Vice President of Corporate Development & Strategy, Ray Conner , Vice Chairman and Commercial Airplanes President and Chief Executive Officer and Leanne Caret , Executive Vice President and Defense Space & Security President and Chief Executive Officer. We’ll report on the presentations by Muilenburg, Smith and Conner, but not the DSS unit.
Boeing has had 17 production rate increases in recent year, with five more on the way.
Boeing investors day: Muilenburg: we cannot stand still
Dennis Muilenburg, CEO of The Boeing Co.
May 11, 2016: Boeing is in the strongest position it’s ever been but Boeing cannot stand still, says Dennis Muillenburg, chairman and CEO of The Boeing Co. Customers want high value and low costs.
“Our goal is to set a higher bar for ourselves and be the best in aerospace,” Muilenburg told an international group of aerospace analysts at the company’s annual investors’ day. “You’ll see us emphasizing more and more ‘one Boeing.'”
Note: Boeing is holding its annual investors’ day (really a half-day) today, with presentations by: Dennis Muilenburg , Chairman, President and Chief Executive Officer, Greg Smith , Chief Financial Officer and Executive Vice President of Corporate Development & Strategy, Ray Conner , Vice Chairman and Commercial Airplanes President and Chief Executive Officer and Leanne Caret , Executive Vice President and Defense Space & Security President and Chief Executive Officer. We’ll report on the presentations by Muilenburg, Smith and Conner, but not the DSS unit.
Muilenburg said Boeing will lead with innovation, including more modern factories, as evidenced by the new wing production plant for the 777X wing analysts viewed Tuesday.
Airbus, Boeing split YTD orders leads
May 10, 2016: Airbus and Boeing split the leads for orders year-to-date through April 30 (May 2), following the monthly total released today by Airbus. Airbus led in wide-body orders by a wide margin. Boeing thumped Airbus in narrow-body orders.
How good is a MAX 7X and why would it replace the original?
By Bjorn Fehrm
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Introduction
May 9, 2016, © Leeham Co: Boeing is considering changing the 737 MAX 7 in a rather drastic way. The present model would be hitting the market as the last of the MAX models in 2019. It hasn’t been selling well. In fact, there are only two legacy airlines and a start-up that have ordered the MAX 7.
Right now, there are just 60 orders for an aircraft series which has garnered 3,100 orders in total.
Figure 1. Boeing’s 737 MAX 7 as presently defined. Source: Boeing
Sources have long told LNC that Boeing doesn’t really want to build the MAX 7. But Southwest Airlines needs the airplane for short-runway airports like Chicago Midway and Burbank (CA) and has resisted suggestions to up-gauge. The other airline that has ordered the MAX 7 is WestJet, which has thin markets in Canada that don’t justify a MAX 8. And there is a third customer, a start-up in Canada that has yet to begin operations.
With the C Series gaining momentum, the cancellation of the MAX 7 now seems off the table. Instead, Boeing is thinking about making it better, the MAX 7X project. What is it, and why would it be better than the original MAX 7? We use our aircraft model to answer the questions.
Summary
- The 737-700, and therefore MAX 7, was defined a continuation of the 737-300 at 126 passengers in a domestic two class configuration.
- Bombardier is offering 135 seats in a similar, but more comfortable, CS300 cabin with an aircraft which is lighter and more economical than the MAX 7.
- The already meager order book for the MAX 7 is therefore getting more pressure from a resurging C Series line.
- Boeing is now attempting to convince its customers that a larger MAX 7, based on MAX 8, would be a better aircraft for the customers (and for Boeing). We reveal why.
Pontifications: Big sigh of relief at Bombardier
By Scott Hamilton
May 2, 2016, © Leeham Co.: To say that the order from Delta Air Lines last Thursday for 75+50 CS100s with conversion rights to the CS300s was welcome news for Bombardier is an understatement.
Bombardier has a superb airplane in the C Series. The passenger seats are the most comfortable coach seats of any manufacturers, better than the Airbus A320 and way more comfortable than the Boeing 737. With apologies to Embraer, the C Series is even marginally better than the Embraer E-Jet, which is very good. Read more
Bjorn’s Corner: C Series flight controls
By Bjorn Fehrm
29April 2016, ©. Leeham Co: With the order by Delta Air Lines, the Bombardier C Series has taken the step up to be a viable alternative to Airbus’ and Boeing’s single aisle 130-150 seat aircraft.
In my description of airliners’ flight control and Flight Management Systems (FMS), I have focused on the established mainline single aisle players. Time to change that; C Series has arrived and will stay in the mainline segment.
Why 130 seats as a limit? Because below 130 seats there are a number of additional players (Embraer, Sukhoi, Mitsubishi…) and we can’t describe them all right now.
Now to how Bombardier has implemented the flight controls, autopilot and FMS for the C Series. In fact, we will look at how they have made the C Series cockpit, Figure 1.
Figure 1. C Series flight deck. Source: Bombardier.
I haven’t flown the C Series yet (working on it!) but I have been able to glean quite a bit over time and spent quite some time in the cockpit with the Bombardier test pilots at the Paris Air Show.
So here is a shot at describing the C Series control philosophies and capabilities and how they mimic/differ from Airbus and Boeing.
C Series charge spotlights 787 deferred costs
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May 4, 2016: (c) Leeham Co.: The $500m charge reported last week by Bombardier for 127 recent orders for its C Series resulted in shining the spotlight on Boeing’s deferred production costs for the 787.
As LNC wrote this week, interpretation of the BBD charge was misunderstood. Some press reports yesterday demonstrate it continues to be. We won’t restate what we’ve already written about the true nature of the charge and how it differs from program accounting used by Boeing–this has been well covered by now. The Seattle Times suggested that the per-plane profit required to pay off the $29bn in deferred production and $3bn in tooling costs for the Boeing 787 was greater than
generally recognized. The average figure is about 20% higher than the number widely cited by Wall Street.
The most commonly accepted figure to recapture the record-setting deferred production costs and tooling has been $30m per airplane, a figure most Wall Street analysts believe is too high to achieve. But this number appears understated, according to an analysis by The Seattle Times in the wake of Boeing’s first quarter earnings call.
Boeing’s 10Q contains language that appears to confuse the issue somewhat.
“At March 31, 2016, $23,661 [million] of 787 deferred production costs, unamortized tooling and other non- recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $8,757 [million] is expected to be recovered from units included in the program accounting quantity that represent expected future orders.”
This appears to suggest the first tranche of these airplanes results in a need for a $36m per-plane profit and the second tranche requires a per-plane profit of $54m. Charles Bickers, a spokesman for Boeing’s corporate headquarters in Chicago, told LNC that segmenting out the ordered but undelivered aircraft from orders yet to be received but assumed is not the way to look at the issue.
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Posted on May 5, 2016 by Scott Hamilton
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