April 17, 2017, © Leeham Co.: Buckingham Research Group last week issued back-to-back notes about Boeing. One was a recap of an investors call with Steve Rimmer, CEO of Altavair Airfinance (nee Guggenheim Aviation partners). The other was BRG’s earnings preview, the first off the mark for Boeing’s earnings call on April 26.
I’ll include a summary of BRG’s earnings preview in a subsequent post when other analysts issue their previews.
BRG’s Rimmer note is lengthy and covers industry issues beyond Boeing. Here are a couple of the Boeing-focused points:
April 10, 2017, © Leeham Co.: Boeing’s first quarter earnings call is scheduled for April 26, two weeks and two days from today. Officials said on the January earnings call, for year-end 2016, that they will decide this year whether to increase the 787 production rate to 14/mo by the end of the decade.
LNC has long believed this won’t happen. In fact, we predicted last September Boeing will have to lower the production rate from 2020.
The question of the rate is sure to come up on the 26th. I doubt CEO Dennis Muilenburg will be prepared to announce a decision one way or the other. It’s Boeing’s pattern to put off announcements like this until the very last minute, so a go-no go on rate 14 probably won’t be announced until toward the end of the year.
April 3, 2017, © Leeham Co.: Sir Richard Branson came to Seattle last week to promote the new service by Virgin Atlantic Airlines to London. In a hissy-fit, he promptly pissed on Alaska Airlines for the business decision to drop the Virgin America brand in 2019.
Alaska, of course, acquired Virgin America last year. The acquisition didn’t sit well with Branson, who nevertheless made out well in the deal.
Although Alaska officials said they would decide later whether to retain the Virgin brand, only those with wishful thinking gave any chance of this happening.
Branson certainly knows this. In 1997, Virgin Group acquired the low fare carrier Euro Belgium Airlines for $60m and promptly dropped the name in favor of Virgin Express.
VE lasted only nine years; it ceased operations in 2006 when it was sold and merged into the new Brussels Airlines.
Branson’s whining over Alaska’s decision to operate the merged operations into the Eskimo’s image smacks of hypocrisy.
Let’s also remember that his Virgin Atlantic is 49% owned by Delta Air Lines, which is building a hub in Seattle in competition with Alaska. The fight between Alaska and Delta is sometimes bitter.
Branson’s criticism of Alaska might have as much to do with Virgin Atlantic’s partnership with Delta as it does his own bruised ego.
March 13, 2017, © Leeham Co.: The soft launch of the Boeing 737-10 and the prospective Boeing “797” Middle of the Market aircraft easily were the headline news items to come out of the annual ISTAT conference in San Diego last week.
The “797,” as the MOM-sector aircraft was unofficially dubbed, brought enthusiastic reaction.
The MAX 10, not so much.
March 6, 2017, © Leeham Co.: Boeing rolls out its 737-9 MAX tomorrow.
Last week, I received a call from one of the network/cable news organizations asking, What’s special about this airplane?
The answer is: Nothing.
Feb. 27, 2017, © Leeham Co.: When Boeing announced it will reduce 777 production to 5/mo, with actual deliveries of the 777 Classic to 3.5/mo beginning in 2018, the aerospace analyst at Goldman Sachs immediately concluded Boeing will have to reduce the rate to 2-2.5/mo.
Since then, and other analysts (whether publicly or privately) reached a similar conclusion.
On the 4Q/YE2016 earnings call in January and again last week at a Barclays conference, company executives said 90% of the positions in 2018 and 2019 are sold.
Shortly after the Barclays conference ended, one analyst called me to challenge the assertion by Greg Smith, Boeing’s CFO, about 2019. By his assessment, the analyst could only get to 60% in 2019. Did I see anything differently?
At that point, I hadn’t looked. When I did later, I got to 59% based on firm orders. I could get to 74%, giving Boeing every benefit. But I couldn’t get to 90%.
Feb. 20, 2017, © Leeham Co.: Boeing’s long-term messaging that all is well isn’t resonating with a number of industry analysts and observers.
To be sure, today and in the short-term, Boeing’s stock is on a steady upward trajectory.
But aerospace analysts are not buying into the long-term message.
Neither did three speakers at last week’s annual Pacific Northwest Aerospace Alliance (PNAA) conference in Lynnwood (WA), including me.
Jan. 30, 2017, © Leeham Co.: Boeing will decide this year whether to boost 787 production to 14/mo from 12/mo by the end of the decade.
I don’t see how this can happen. Neither do several aerospace analysts.
Book:bill sales were just 0.36 in 2014, 0.53 in 2015 and 0.42 in 2016. The last three years saw a book:bill rate average of just 0.43, or an average of 57 airplanes per year.
Boeing is burning off the backlog, not adding to it. At this rate, Boeing won’t be able to sustain rate 12 beyond 2020, let alone boost the rate in 2019.
Not unless there is a plethora of sales this year. This doesn’t seem likely.
Jan. 23, 2017, © Leeham Co.: The global economy is softening and airlines are deferring airplanes, but we don’t see Airbus or Boeing trimming aircraft production for their single-aisle airplanes.
Over-sales and rising fuel prices support today’s A320 and 737 production rates and the increased rates previously announced by Airbus and Boeing.
While oil prices are low compared with the pre-Great Recession levels, Embraer’s John Slattery noted that fuel costs went up more than 48% last year alone. Fuel now costs more than $50/bbl. West Texas Intermediate Crude was selling at $51.08 Thursday, off $1.40. There will be ups and downs, but the trend is up.
Slattery, the president of Embraer Commercial airplanes, believes “fuel efficient fleets will become more critical in the coming years,” he wrote in a Tweet Jan. 7.
Jan. 16, 2017, © Leeham Co.: Airbus and Boeing continue to offer planes that nobody wants.
Well, almost nobody.
The aircraft remain on the published price lists of both companies, for reasons that passeth understanding. Nobody ordered the aircraft for years.