Boeing’s annual investor conference covered a raft of key issues – the focus here is on BCA (Commercial Airplanes).
A summary of the remarks made by Jim McNerney, James Bell, Jim Albaugh and Patrick Shanahan can be found below.
Compiled by Daniel Tsang
Jim McNerney
․We can see an improving business
․A company that is working through its difficult period
․Made important strides in important milestones
․Unprecedented number of programs & EIS, 787 & 747-8, P-8A AEW&C, 777F, international aerial refueling tanker
․Aircraft business is clearly gaining momentum
․Suddenly reduced demand a year ago
․Not out of the wood yet
․The economy hit bottom in 2nd quarter 2009
․Our airline customers were facing massive customer decline & cargo traffic
․We now have 4 Dreamliners flying
․More than 750 flight hours in flight test
․Passed the ultimate load of the wing, subjected it to 150% of maximum load
․We now have 3 airplanes flying regularly [747-8F]
․The 737 production rate increased to 34 per month
․Total commercial airplane backlog held strong
․Sold out delivery positions through 2012 and on the 787 program a few years beyond that
․787 will change [the way] many airplanes are made through the rest of this century
․It accounts of 40% of BCA’s backlog
․We’ve taken steps to reduce risks on the 787 supply chain
․We’ll also improve our long-term competitiveness
․More than 80% of BCA backlog will go to international customers
․Start 2nd quarter of $10.4 billion of cash
․Develop new leaders who will replace the ones today
․We’ve promoted more than 30 new generation leaders last year
․We chose these leaders on their values & integrity, inspire their teams, ability to set high expectations
․The [Charleston, SC 787 FAL] facility will eventually be self-sufficient
․Our plan that we’ve in place is to have an insulated facility over time
․The US will be slow growth
․Driving productivity frees up resources to fund new opportunities
․We’ll be focused on profitability
․We’ll have a lot of cash [by delivering 787s]
․737, 777 developments will be coming
James Bell
․Improving passenger & freight traffic from depressed levels
․Number of deferrals declining
․International opportunities continue to increase
․$15.2 billion of revenues
․Our backlog remains strong & diversified
․Lower revenue than 2009 due to fewer 777 deliveries
․2011 we continue to expect as 787 & 747-8 deliveries ramp up
․Strong liquidity & low debt level
․Focused on productivity improvement
․BCA has been building on the 787 inventory
․Strong market demand for this product [787]
․We expect to drive these [inventories] down in the future
․We expect R&D to decrease in the next few years, but not to historical low due to 737, 777 development needs
․We expect much of the Charleston investment late this year or early next year
․We expect to have 45 widebody inventories which will be relieved in the next few years
․Our cash flow will improve significantly in 2011 than this year
․The emergence of new competitors will increase the pressure
․With initially low margins on the 787
․The aircraft financing market improving
․Good deals are getting financed at reasonable terms
․We expect the funding gap [in 2010] to be $0 – $2.5 billion
․The business is capable of generating higher margins than what they are today
․We’ve got to have a right balance [on 787 models]
․We buy in dollars, “we’re not naïve”, we negotiate with them
․ [Buying in US dollars] that protects us now
․We look at better ways at currency hedging
․We’ll rebalance our model
․We look at both of our businesses to support future growth
․A lot of R&D on the defense side is in the government contract
․Obviously all new programs start with low margins
․Ultimately we’ll get there [high 787 margins]
Jim Albaugh
․ Sometimes we focused on the 787 program too much
․Backlog 7 times of revenue per year
․17 deferrals in 1Q 2010
․4 airplanes flying right now
․3 747-8F based in Palmdale right now
․Want to focus on execution better
․Ensure that we have the best people to help us define the future
․He [Mike Bair]’s going to talk with the customers right now [over the 737 RS]
․We have a lot of risks over the next several quarters as we bring those airplanes into market
․We’re starting to see the beginning of the cycle
․Exercising options, talking to us to buy airplanes
․About 20% of our backlog is in Europe
․We have 12 airplanes from Greece & Portugal
․We have 2% [of backlog] on JAL, they’re working with us, and in 2000 we didn’t have any backlog from Middle East
․10% of current backlog is from Middle East
․I believe we can see the up-cycle very soon
․Much more discipline, right now we’re oversold in 2011, 2012, 2013
․Understand what’s going on with Europe, make sure that the supply chain is ready for ramp up
․271 rescheduled airplanes in 2009
․The customer base has held up pretty well
․We feel pretty comfortable in catching Airbus in terms of deliveries in 2011 & 2012
․Efficiency of this airplane [737] improved 7%
․777 cost 15% [to operate] lower than an A340
․737 cost 5% [to operate] lower than an A320
․787 flown remarkably well
․We’re currently flying with the FAA
․We’re doing more test points per flight
․We should be able to fly each airplane per day
․Each plane will log slightly less than 90 hours per month
․We’ve eaten some of our contingencies
․2 airplanes per month up to 10 per month
․Drilling down to every work center
․Verifying the supply chain their learning curve
․This is not a program that is highly profitable
․It was not a high margin airplane [777]
․For the 747-8F, we got 300 hours, expect TIA in the next few days
․This is an airplane that is 16% more efficient, 30% quieter, more freighter area than the 747-400, interested by people
․Able to increase 777 payload by 5,000 pounds
․We’ve not made a decision [over 737 re-engining]
․It’s a hard decision
․We’ll take a hard look at how the A350 is doing
․Those days of duopoly with Airbus are almost over
․We’re making sure that people will continue to pay a premium to buy our planes
․We’re improving the aerodynamics of the airplane [737]
․GE is doing a new engine
․Working with the governments on ATM
․Save 10-15% of petroleum through controlled descent
․Biofuel works at $100 per barrel
․They [former IDS, now BDS] can do without me, I think BCA is the same
․We’re trying to push decision-making down
․We’re making our people to focus on running the business
․787: 42% join position flow time reduction
․787: 40% manufacturing quality improvement
․787: 46% baseline cost per job reduction
․We need to position ourselves on the 737 & 777
․How deep and enduring the customer relationships are
․We need to re-establish market leadership
․“If you’re second in a duopoly, you are the last”
․2/3 of liquidated damage done on 787
․Some of them can walk away
․The 747 does have more risks
․The 737 can do with a new engine, or a new airplane
․We’re seeing additional orders 737, 777 so far
․You only do nothing if others don’t do anything [737 re-engining]
․We take the -9 with a very disciplined approach
․Right now the airplane closes on standpoint of range, payload
․The 787-10 is a trade space between the 777X
․A lot of parameters and cost
Pat Shanahan
․Retire significant risk
․If you’re looking out of the 787 windows and see the wings bent up by 26 feet, you’re good (jokingly, laughter’s followed)
․External outline of the 787-8 fixed
․We’re now moving from a phase of testing to a phase of demonstration
․Work on design required to certify the airplane, take cost out of the airplane
․Selective engineering effort
․Stabilizing, maturing the 787 production capability
․Performance continues to improve
․The suppliers really see the learning curve put in the basic plan
․We’re now working as an integrated team
․Right flow to final assembly
․The 787-9 is a fabulous addition to the 787 family
․We’ve learned a lot from building the 787-8, and directly apply them on -9
․Greater design responsibility on the airplane
․June firm configuration
․Logical wiring configuration
․Outstanding configuration
․The power system won’t have to be altered
․The shear-ties issue is a very low-level one
․Minor issue – 12 parts that need reinforcement, simple fix
․We’re surprised at the attention that it is getting
․Our challenges in Charleston are engineering changes
․We’re cleaning up [the engineering changes]
