Boeing Reports Second Quarter Earnings
Boeing announced its second quarter earnings - and while the numbers published today made for great reading, it was ultimately news about the delayed 787 that seemed to grab the limelight.
The key details of Boeing’s second quarter earnings are as follows:
• Second-quarter revenue rose 1 percent to $17.2 billion
• Earnings per share of $1.41 rose 22 percent
• Operating cash flow increased to $1.0 billion
• Backlog at $328 billion - nearly five times current annual revenues
• 787 side-of-body technical solution identified; schedule assessment ongoing
Boeing aims to update the 787 schedule during this quarter, with the likelihood of first flight perhaps being pushed back as late as possible to ensure the conformance of the fix. Launch customer All Nippon Airways had previously envisaged delivery in February 2010, however, first flight may now take place as late as first quarter next near thereby pushing out first handover almost a year later than planned.
First Boeing 747-8F in final body join position
Image courtesy of Randy’s Journal
Having absorbed almost $1bn for charges on the 747-8 program, with the first 747-8F now in final assembly, Boeing aims to start batting down the hatches to ensure that no further slippages in this legacy program occur. The reality is that in the absence of guidance for 2010, production and delivery of the first few 747-8F’s will go some way in alleviating the inherent revenue shortfall by the 787, and indeed, there is also the slower production rate of the 777 to factor in for earnings next year too. The prospect for 787 deliveries has been slashed time and again since it was first delayed in October 2007 - until the side-of-body fix is tested, validated and approved, it could well be months before the first 787 is ready to fly. The consequential knock-on means that the chances of seeing any 787 deliveries in 2010 appear to be remote.
That said, with the current downturn and the almost patient nature of 787 customers, 2011 seems to be the first year in which meaningful deliveries will commence, particularly as capacity cuts by most airlines take time to enact - with the 787 earmarked for both growth and replacement of today’s older fleet, it certainly stands in better place for an industry rebound.
Overall, Boeing increased its cash holdings to $5bn - although this doesn’t reflect the recent puchase of Vought Aircrafts facilities earlier this month.
A summary of the conference call can be found below, with remarks by CEO Jim McNerney and CFO James Bell.
Jim McNerney
• Display of strong earnings
• Disciplined cash management
• Progress on P-8A on & ahead of schedule
• Final body join on first 747-8F which is now 75% complete
• 747-8F first flight by year end, EIS in Q3 of 2010
• 787 continues to challenge us
• 787 program review just last week
• Making solid progress to resolve side-of-body issue
• Solution identified, straightforward fix
• Local issue addressed with local fix
• Abundance of caution – yet to determine impact on program
• Made right decision to delay 787’s first flight
• Working quickly to establish new 787 schedule
• Not going to sacrifice quality for the sake of expediency
• On Vought purchase – optimising 787 work, bolster ability to make composite structures
• We are learning, even if it means redrawing the lines
• Successful gauntlet, taxi tests – pleased with results
• 787’s No.3 & 4 achieved power-on, assembly started on first production 787 (ZA100)
• 787 remains game changer – gratified by backlog
• Fundamentally healthy BCA/IDA businesses, driving gains in productivity
• Environment continues to be challenging
• 70 deferrals in Q2 2009
• Deferrals widespread across region/airplane model(s)
• Deferrals in backlog are coming down
• Deferrals related to economic pressures, no real trend
• No change to 737 production rate
• Reduced headcount by 5000 jobs at end of June 09
• On track for 10,000 jobs cut by year end
• Priority is to get 787 on track
• Reposition IDS, expand in international markets
• Preserve financial strength
• On 787 wing redesign – “we don’t see that”
• Been through the analysis, chosen the approach we want to take to reinforce side-of-body
• Initial testing gives confidence in selection of fix
• 787 performance not impacted
• Retrofittable, easily flow into existing 787 production
• 787 development was on track prior to June 23 delay
• Testing model didn’t predict (wing) behaviour
• Tightened engineering discipline and “learning from this”
• FAA aware of ongoing fix solution
• Not in position to comment on flight test program
James Bell
• Assessment in 787 shows program not in loss position
• Cost improvement being analysed and implemented on 787
• 787 quarterly inventories running at $800m
• Costs on 777 production down $400m on work-in-progress/delivered 777’s
• IDS backlog at $70bn
• BCC financing of $429m in 2009, estimate $1bn for whole year
• End of Q2 2009 with $5bn cash
• Guidance unchanged until 787 assessment complete
• Aim to deliver 480-5 airplanes this year
• Until 787 fix gets clearer, full impact will not be known
• 787 inventory costs amortized over all deliveries
• Company being disciplined with cash flow
• Aggressive management of finances, progress payments and delivery payments
• Not cutting dividend
• Revenue stream based on 850 787’s sold so far
• Determined that the 787 is profitable
• Some R&D, recurring cost adjustments to be made
• Vought purchase doesn’t assume a second 787 line at all
37 comments July 22nd, 2009
