Boeing Reports Fourth Quarter, Year End Earnings

January 28th, 2009

Boeing today published its 2008 fourth quarter and year end earnings.

As expected, the effect of the IAM strike has dampened the company’s financial strength, yet remains confident that key targets on BCA programs such as the 747-8 and 787 will be achieved.

• Fourth-quarter revenues declined to $12.7 billion from $17.5 billion as labor strike pushed airplane deliveries out of the quarter
• Fourth-quarter EPS declined to loss of $0.08 per share, reduced by an estimated total of $1.79 due to strike, 747 charge and litigation-related reserve
• Backlog grew 8 percent in 2008 to a record $352 billion
• 2009 EPS guidance of $5.05 to $5.35 underpins a solid foundation in challenging times
• 787 suffers order cancellation, backlog now 895 net airplanes
• 2010 guidance to follow
• 480-485 airplanes to be delivered in 2009

For 2008, net income fell 34% to $2.7 billion, EPS was $3.71 per share, and revenue fell 8 percent to $60.9 billion, including a charge of $0.61 related to the 747-8 program.

“Our imperative going forward is improving execution where it needs to be improved, maintaining strong performance across all our production programs, and preserving our financial strength to grow in these challenging economic times,” said CEO Jim NcNerney.

Reporting its fourth quarter and year end deliveries (for 2008) earlier this month, the company delivered 50 airplanes with the full year deliveries totally 375, down markedly as a result of the industrial action that forced a cessation of production.

Image courtesy of Boeing

“With a balanced base of customers from all regions of the world, from airlines with varied business models, and with strong orders across our product line, we are now focused on executing this strong backlog position,” said Boeing Commercial Airplanes President & CEO, Scott Carson earlier on this month when 2008’s final order numbers were announced.

Speaking to FleetBuzz Editorial.com, Boeing’s VP for Marketing, Randy Tinseth echoed Carsons position on its orderbook.

“Our focus is protecting our airplane backlog and to work with our customers to achieve that,” he said.

Having seen first hand the progress on the 747-8F and speaking extensively to 747 chief engineer Michael Teal, one of the benefits the company has derived due to its initial setbacks is the further refinement of the family, which next month celebrates the 40th anniversary of its first flight on February 9th, as well as commemorating the 20th anniversary of the entry into service of the ubiquitous 747-400.

Cost overruns on the 747-8 and 787 families are not surprising, however, one of the few known and discussed elements is the key benefits of enhancement to these two products as the company works towards production and service entry of these models.

My discussions with 747-8 Chief Engineer Michael Teal will be published soon.

Also of importance from the earnings news was the second cancellation of a 787 order. The firm backlog now stands at 895 airplanes from 58 customers. During 2009, Boeing says it expects to deliver around 480-485 airplanes and will provide earnings guidance for 2010 later on in the year.

Discussing the figures with me were analysts Howard Wheeldon and Doug McVitie.

“It may be hoped that given the unprecedented strike impact on Q4 earnings lessons will be learned. Clearly this is a hugely disappointing result and Boeing must strive to ensure that such a position is never repeated. That IDS revenue and margins have slipped is also a concern though hardly that surprising. Nevertheless, as Boeing moves into 2009, we believe there remains ample scope for underlying performance improvements and given that credit availability and overall health of the airline customer base does not seriously worsen we believe that the Boeing is probably now through the worst of its problems.

It is pleasing to note that the gross order book has continued and that the contractual order backlog at BCA stands at $279bn. Even allowing that this figure is presumably flattered by 105 aircraft deliveries delayed by the strike the record level of backlog and that there have probably been fewer order cancellations than many expected provides a superb base to move forward. One notes also that there is no further hint of problems on the 787 program, only one order cancellation and that net orders stand at 895 aircraft from 58 customers. That Boeing has restated that it still expects to fly the aircraft in Q2 2009 and for deliveries to commence in Q1 2010 is also to be welcomed.

We are comfortable with the overall FY09 revenue guidance from Boeing between $68-$69 billion and of EPS in the $5.05 to $5.35 region. While commercial airplane financing will increase to around $1bn we note that capital expenditure, envisaged at $1.4bn this year, will be lower than FY08. R&D is forecast at up to $3.8bn and the non-cash pension expense element at $1bn. Overall, we suspect that the impact of all this on cash flow should be neutral to slightly positive. We would also suspect that the share buy-back program will be scaled down,” Howard Wheeldon tells me.

Doug McVitie from Arran Aerospace offered this perspective below:

“Boeing will want to forget 2008, a year it went backwards on many fronts. Yet to be looking forward in 2009 to both the significant 40th anniversary of the 747’s first flight and the dawn of the 787 era is a testament to the company’s commercial longevity, which no one difficult year like last year seems to have derailed.
 
The 747 has sold 1,500 or so units in 40+ years, the 787 nearly 900 in five years. A multi-year video of Boeing Commercial alone rather than a single-year snapshot points to a far more revealing success story“, says McVitie.

The key points of the conference call are listed below:

Jim McNerney/James Bell Key Points

• Business environment challenging
• Aim to address issues during 2009
• 747-8: Work statement increases, underestimated engineering, design changes
• 747-8: remains “very competitive airplane”, provides “great value”
• 747-8: 50% charge relates to wing/fuselage changes & costs to suppliers
• 747-8: 15% component changes by suppliers
• 747-8: 10% load design changes compared to 747-400 parts
• 747-8: 10% internal production issues with supply chain
• 747-8: 15% higher pension costs
• Notable progress on 787 Dreamliner
• FAA has certified maintenance program
• Focus on getting test airplanes in the air
• Working with supply chain to improve production
• Aim for 10x a month production by 2012 on 787
• 787 production will be increased and/or accelerated as necessary
• ”Puts/Takes” this year - 15 orders off the books this week (787)
• Supply management consolidated under Ray Conner
• 6% / 10,000 cut in workforce through attrition, retirement & layoffs
• Backlog is holding
• 110 deferrals, 3% of backlog, 6 cancellations for 2008
• Envisage increased deferrals for 2009
• Happy with quality/diversity of backlog
• ”Not satisfied” with 2008 results
• Drive toward execution for 2009 and preserve financial strength
• Aim to have all 6 test 787’s flying with 4 months of first flight
• 787 schedule “looks tight on paper”
• Software integration moving along, benefiting from delays
• Significantly overbooked, primarily on 737
• BCC to provide $1bn of new financing
• ”Not business as usual”
• Some backlog will be deferred/cancelled
• Opportunity to bring forward deliveries for other customers
• BCC well position during this difficult time

Tags: 737, 747-8, 747-8F, 747-8I, 777, 787, 787 Dreamliner, Boeing, Dreamliner

Entry Filed under: Boeing, Boeing 737-700, Boeing 737-800, Boeing 737-900ER, Boeing 737NG, Boeing 747, Boeing 747-8 Intercontinental, Boeing 747-8F, Boeing 747-8I, Boeing 767, Boeing 777, Boeing 777-200LR, Boeing 777-300ER, Boeing 777F, Boeing 787, Boeing 787 Dreamliner, Boeing 787-3, Boeing 787-8, Boeing 787-9, Boeing Commercial Airplanes, James Bell, Jim McNerney