Boeing Reports Third Quarter Earnings
October 22nd, 2008
Boeing reported its third quarter earnings today, much of which was not a great surprised given the IAM union strike that has hit the company hard.
The key points outlined in the results were as follows:
- Third-quarter revenues declined to $15.3 billion from $16.5 billion as labor strike and supplier production problems pushed airplane deliveries out of the quarter
- EPS declined to $0.96 per share, reduced by an estimated $0.60 on the lower deliveries and by $0.08 due to tax adjustments
- Backlog grew to a record $349 billion as near-term demand remains strong
- Updated financial guidance to be provided after strike concludes
Image courtesy of Boeing
“While the suspension of commercial airplane deliveries had a major impact on the quarter, we effectively executed the remainder of our business and kept our focus on the strong balance sheet we have built over the past few years,“said CEO Jim McNerney.
In its financial presentation ahead of scheduled talks with the IAM with mediation, it is clear that Boeing may not be willing to relent on union demands on outsourcing. The key point of which states:
“Committed to resolving strike while protecting our ability to compete“
As the strike approaches the end of its second month, Boeing estimates that the dispute has cost around $2.1bn for the quarter. Cost increases on the 747-8 have also been noted, just a few weeks after production of the first 747-8F had commenced, although this was offset by decreased spending on research/development.
Boeing stated that upon conclusion of the strike, it would provide new guidance of its EPS.
EPS for 2008 prior to the strike came in at $5.70-$.85. Analyst Robert Stallard recently suggested that EPS could drop to just $4.99 a share, however, much of this will be dependant on the duration of the industrial action, which for the time being has no end in sight.
“Although we have trimmed 2009 estimates from $6.98 to $6.80, the real change is to 2010, which goes from $7.58 to $6.00,” says Stallard.
Most consensus now focuses on the 787 service entry being primed for early 2010 given the longer than expected strike, potentially meaning that all possibilities for a 2008 first flight are now all but extinguished.
Points raised by CEO Jim McNerney (JM) and CFO James Bell (JB):
JM
• “Worked hard” to avoid strike
• Goal remains the same vis a vis job security/market changing dynamics
• Disappointed that company cannot meet customer requirements
• Galley supply issue will meet revised schedule once strike ends
• 10% of current backlog with US airlines
• 2 cancelled orders, 80 deferrals – some carriers seeking earlier delivery positions
• Highlighted 787 milestones, gear tests and pressure tests
• American Airlines 787 order “vote of confidence”
• Day-for-day impact on strike
• On Boeing Capital Corp (BCC): lending tight, available on selective basis
• 80% of backlog has Ex-Im Bank financing option
• Lower oil costs allowing carriers to recapitalise
• Confidence high through diversity of current backlog
• Boeing faces “challenging times”
• 747-8I will be produced
• Focus on competitiveness
• Outlook remains strong
• Steady increased production to meet demand in lieu of current economic climate
• No whitetails
• First flight of 787 remains uncertain
• Impact of IAM strike not yet fully evaluated
• Supply chain for all programs catching up during strike
JB
• 16% lower yr/yr deliveries
• $70m increase on R&D
• 625 orders to Sept 30, 2008
• 149 orders in Q3
• Backlog up 7% to $349bn
• BCC to arrange “some financing” in 2009
• $519m spent on buyback of 7.9m shares
• $295m on dividends
• Cash drop from Q2 to Q3 down to $4.2bn
• May send staff home to lower costs if strike goes on
(Prior articles on the Boeing/IAM strike can be found by clicking these links here, here, here, here, here, here, here, here, here, here, here, here, here, here and here.)
Entry Filed under: 787 Dreamliner, Aeroplane, Aerospace, Air Transport, Air Travel, Airlines, Airplane, Airplane Order, Airplanes, Airport, Airports, Alenia, Aviation, Boeing, Boeing 737, Boeing 747, Boeing 747-8, Boeing 747-8F, Boeing 747-8I, Boeing 777, Boeing 777-200LR, Boeing 777-300ER, Boeing 777F, Boeing 787, Boeing 787-3, Boeing 787-8, Boeing 787-9, Boeing Commercial Airplanes, Boeing Orders, Dreamliner, FleetBuzz.com, Fuji Heavy Industries, Global Aeronautica, IAM, Jet Travel, Jim McNerney, Kawasaki Heavy Industries, Mitsubishi Heavy Industries, SPEEA, Scott Carson, Spirit AeroSystems, Vought
12 Comments Add your own
1. Graphite Epoxy | October 22nd, 2008 at 1:29 pm
I agree with Fleetbuzz’s analysis.
McNerney continues to be analytically bellicose towards the IAM.
Thus, these new negotiations will probably be fruitless, and the strike will continue into at least December.
The refusal to admit any weakness in the backlog, and the seeming absence of any attempt to downplay the company’s cash position does however, play to the union’s “share the wealth” arguement. Of course this only make the fire burn hotter.
I have come to the conclusion that these talks, called by the mediator, were the results of political pressures, and not any change in either side’s position. If so, the FMCS may actually serve to prolong the strike rather than resolve it. I believe the selection of Washington D.C. as the venue was a mere attempt at putting both sides in some level of discomfort, with an air of pressure and national ramifications. It alos allows easy access by politicians to the delegations from each side, so that they can apply pressure as well.
But I fear it will be all for naught, because 27000 are on strike, and we aren’t likely to back down.
2. Graphite Epoxy | October 22nd, 2008 at 5:02 pm
I’m currently listening to the earnings statement.
McNerney opened right up with the strike issue. While paying lip service as to the value of the IAM workforce, but talking tough, the abolute frustration in his voice was palpable. He clearly sounded angry to the point of struggle to contain it.
Simultainiously, I keep on on an the real time ticker for BA stock.
The beginning of the call resulted in the stock gaining back half a point of a four point loss at the open. With Bell speaking now, the stock price has been flat but down by 3.50.
Cash reserves are down significantly to 7.2 billion. They seem to try to downplay the strike as the primary reason.
Bell was honest about the time it will need to restart production. It will hardly be an instant process.
The pension plans are taking a big hit.
McNerney is now back, talking tough about the IAM again. Not a good sign.
McNerney is holding to the current backlog in spite of potential cancellations and deferrals.
McNerney is not as articulate and sharp as I thought he would be. At least not without a script.
McNerny is now claiming parts are no longer the 787’s problem, now it’s the strike. He made statements inferring that perhaps parts were never the main problem which I find incredibly dishonest.
Bell and McNerney claim no problems with aircraft financing.
“We bit off more than we could chew” says McNerney regarding 787.
McNerney embarrased about 747-8’s progress.
Clearly they haven’t got a handle on the 787 global supply chain yet.
Bell is an impressive speaker. He is clearly a cool cucumber under pressure.
Production restart: Bell says the longer the strike goes, the longer the re-start will take, but Bell is being evasive.
McNerney throws an olive branch, says compromise is possible, dodges question as to if he will become personally involved in the talks, but doesn’t rule it out. Does the right thing and refuses to reveal content of talks with union leaders.
Bell infers layoffs within the company are possible if strike drags on.
McNerney waffles on threats about the company offloading more work.
Compliments the IAM workers, say “They can compete for any work I’ve got”.
Wow.
Why then. does he keep rejecting our offer to compete?
I didn’t know Dominic Gates was Irish.
McNerney brushes off SPEEA.
McNerney says we have 100+ Orders for 747-8? REALLY?
Bell again infers layoffs if strike goes on but dodges specifics.
Overall, action packed.
McNerney was clearly nervous and hostile to the IAM, but seemed to calm down and become a little more conciliatory near the end.
Bell was rock solid and consistent if evasive. After taking a $4/share loss early, the stock stabalized at
-3.50 during the call, and traded right around that level the entire time. The market seems non plused by the call.
I’m still tring to digest McNerney’s combination of hostility, praise, saber rattleing and contrition, But on the whole, I think any peace overtures were ment to calm the markets, and mean little in reality.
3. Bobbelieu | October 22nd, 2008 at 7:26 pm
McNerney is a fool if he thinks he can simply ‘brush off’ SPEEA.
We apparently have a surprise waiting for him…
*sigh* His distemper over union activity must be some sort of corporate weenie-waving. A thing middle-aged executives do to feel “virile.”
4. aircraft_painter | October 22nd, 2008 at 8:06 pm
• May send staff home to lower costs if strike goes on
YES! Send the suits home with out pay so they can feel the costs of Boeing’s selfishness !! (oh and the scabs too)
5. Precocious | October 23rd, 2008 at 12:07 am
A scab is a leision on the skin when a would is exposed to oxidization. People gotta eat and either end this power struggle or get out of dodge. Pride and greed on both sides and all i want is a warm place for winter. The suits are insolated by Swiss bank account. Postpone much longer then their will be man who abdocate for food and rent.
6. DonS | October 23rd, 2008 at 12:32 am
Interesting - Nobody mentions the daily savings in direct salary to BA when 27,000 machinists are NOT working
Lets run the numbers- even though I do not like using Average salary as a guide.
27,000 workers times average $57,000/year divided by 260 working days/year equals 5.76 say 6 million $$ DAY.
Not counting weekends -
Now 47 days divided by 7 days/week = 6.7 weeks at 5 days /week normal = 34 working days.
34 working days normal times 6 milion/day = 200 milion in labor savings
To go a bit further - there is no doubt that when the IAM does go back to work - it will be virtually unlimited overtime for months to catch up ( assuming SPEEA does not strike)
IF one works ONE day overtime per week, how many weeks does it take to catch up ?
At time and a half over 40 hours/week take 34 working days divided by 1.5 = 22 to 23 weeks or about 6 months of one day/week OT to catch up. Actually less cuz any settlement will be at some higher rate.
And many will have the ‘ opportunity ” to work two days of OT, etc.
So for those naysayeers who claim the lost wages will never be made up - check your math again
Of course is SPEEA goes on strike, the OT for the IAM will start heavy and taper off in a few weeks - so it could take a bit longer to make up or ‘ break even ”
And what will BA have gained ?
making enough workers and customers and suppliers bent out of shape to result in McNearney and Carson and Kight getting a shove out the door with their golden or platinum parachutes, albeit with having to make do with a little less whipped cream on their caviar on their cheesecake. And maybe a smaller sized vacation retreat, and a new lexus every other year !
Oh woe ;-PPPPP
7. mike j | October 23rd, 2008 at 5:00 am
Yeah, it’s all our (IAM) fault for not accepting a paycut back on Labor Day, not not rolling over for outsourcing, and not buckling under the sleazy PR tactics.
How dare us!
8. mike j | October 23rd, 2008 at 6:03 am
787 was NOT going to fly by the end of 2008, strike or no strike!
747-8 was already behind (poor planning/managing), strike or no strike!
777 was behind on supplier parts(outsourced), strike or no strike!
737 unknown (I don’t work there)
767 unknown (same)
All of these are due to Management blunders (I mean, due to letting them “manage their business as they see fit”).
9. Jet Jockey | October 24th, 2008 at 9:03 am
W. Edwards Deming’s 14 Points.
Does anyone know of his teachings?
Toyota did. I thought Boeing was following Toyota’s business model for quality AND MANAGEMENT!
Well here are the fourteen points. I like the last one, number 14 myself.
1. Constancy of purpose
Create constancy of purpose for continual improvement of products and service to society, allocating resources to provide for long range needs rather than only short term profitability, with a plan to become competitive, to stay in business, and to provide jobs.
2. The new philosophy
Adopt the new philosophy. We are in a new economic age, created in Japan. We can no longer live with commonly accepted levels of delays, mistakes, defective materials, and defective workmanship. Transformation of Western management style is necessary to halt the continued decline of business and industry.
3. Cease dependence on mass inspection
Eliminate the need for mass inspection as the way of life to achieve quality by building quality into the product in the first place. Require statistical evidence of built in quality in both manufacturing and purchasing functions
4. End lowest tender contracts
End the practice of awarding business solely on the basis of price tag. Instead require meaningful measures of quality along with price. Reduce the number of suppliers for the same item by eliminating those that do not qualify with statistical and other evidence of quality. The aim is to minimize total cost, not merely initial cost, by minimizing variation. This may be achieved by moving toward a single supplier for any one item, on a long term relationship of loyalty and trust. Purchasing managers have a new job, and must learn it.
5. Improve every process
Improve constantly and forever every process for planning, production, and service. Search continually for problems in order to improve every activity in the company, to improve quality and productivity, and thus to constantly decrease costs. Institute innovation and constant improvement of product, service, and process. It is management’s job to work continually on the system (design, incoming materials, maintenance, improvement of machines, supervision, training, retraining).
6. Institute training on the job
Institute modern methods of training on the job for all, including management, to make better use of every employee. New skills are required to keep up with changes in materials, methods, product and service design, machinery, techniques, and service.
7. Institute leadership
Adopt and institute leadership aimed at helping people do a better job. The responsibility of managers and supervisors must be changed from sheer numbers to quality. Improvement of quality will automatically improve productivity. Management must ensure that immediate action is taken on reports of inherited defects, maintenance requirements, poor tools, fuzzy operational definitions, and all conditions detrimental to quality.
8. Drive out fear
Encourage effective two way communication and other means to drive out fear throughout the organization so that everybody may work effectively and more productively for the company.
9. Break down barriers
Break down barriers between departments and staff areas. People in different areas, such as Leasing, Maintenance, Administration, must work in teams to tackle problems that may be encountered with products or service.
10. Eliminate exhortations
Eliminate the use of slogans, posters and exhortations for the work force, demanding Zero Defects and new levels of productivity, without providing methods. Such exhortations only create adversarial relationships; the bulk of the causes of low quality and low productivity belong to the system, and thus lie beyond the power of the work force.
11. Eliminate arbitrary numerical targets
Eliminate work standards that prescribe quotas for the work force and numerical goals for people in management. Substitute aids and helpful leadership in order to achieve continual improvement of quality and productivity.
12. Permit pride of workmanship
Remove the barriers that rob hourly workers, and people in management, of their right to pride of workmanship. This implies, among other things, abolition of the annual merit rating (appraisal of performance) and of Management by Objective. Again, the responsibility of managers, supervisors, foremen must be changed from sheer numbers to quality.
13. Encourage education
Institute a vigorous program of education, and encourage self improvement for everyone. What an organization needs is not just good people; it needs people that are improving with education. Advances in competitive position will have their roots in knowledge.
14. Top management commitment and action
Clearly define top management’s permanent commitment to ever improving quality and productivity, and their obligation to implement all of these principles. Indeed, it is not enough that top management commit themselves for life to quality and productivity. They must know what it is that they are committed to—that is, what they must do. Create a structure in top management that will push every day on the preceding 13 Points, and take action in order to accomplish the transformation. Support is not enough: action is required!
Oh how quickly they forget…..
10. mike j | October 24th, 2008 at 1:19 pm
Blogger 9,
Yes, Boeing makes us all learn of such principles constantly, they call it LEAN or something. And I personally think it would work like a charm, if only Boeing Management would actually DO it.
As is, they only give it lip-service. Their motto seams to be: make more and more obsticles and disorder… ie: do the opposite of Deming or LEAN or anything sensible.
I even believe it would be a way more prosperous company if Toyota WAS running it.
As a management body, Boeing seems to only louse up the works. There is way too much politics and “do-it-their-way-or-else”, even if “their-way” is unrealistic and impracticle.
Shops and crews which are running smoothly, Boeing Management will come in and monkey it into a very screwed up caos. All the while NOT LISTEN to any sensible imput from any hourly workers there (even the 14 Points of your blog).
Then they’ll demend overtime to make-up for the behind-schedule mess they created, then say “how come you ain’t done yet?” and its all our fault if we get burned out.
And IF we happen to get it all caught-up and straightned-out by working our butts off, then they’ll come in and monkey it all up some more so that it is behind all over again.
The outsider who doesn’t work for Boeing, if they casually observed how Boeing Management runs the show, would be completely amazed that airliners ever get built (and fly?), kInda like watching Congress or Wallstreet.
It is the IAM Worker who puts the airplanes together dispite all the obstacles Management puts in the way.
11. DonS | October 24th, 2008 at 6:16 pm
re Deming - in the 80’s BA invited Deming to lecture on his ‘ system ” to management.
About a year later, as part of the lecture series, Deming came back. As to be expected - BA brass took him on a tour and a viewfoil pitch ( in the days before powerpoint ) of how well they had done, yada yada
Deming then gave his evaluation.
As usual - he was quite blunt -
paraphrased ‘ you havent heard a word I said ”
Deming was never invited back
Then came Juran . . .
And courses in Juran - required attendance in the early 90’s
So what has changed ?
12. mike j | October 24th, 2008 at 10:13 pm
To top it off re: Deming etc…
1997-98, when Boeing and McDonnell/Douglas “merged” it really was a hostile takeover not a merger, in that the managers from Boeing had gotten replacd with McDonnell managers.
So basically we had a successful company (Boeing)”merged” with an unsuccessful company (McDonnell), while the unsuccessful company then ran the show and kept the name (in name only) of the successful company.
Could it go anywhere but down from there?
It gives me personally pause to worry just a little if the new model 787 is actually designed safetly and with quality, or just cheaply?
Given the past track-record of McDonnell (planes that are barely aduquate, scary to fly on, and even harder to maintain) and all of the production delay/difficulties 787 has already had (designed since the “merger”), will it really be “good-as-advertized” or just “barely adequate, etc”?
In a nutshell, it is not really “Boeing” anymore,
it’s something far less…
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