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Wednesday, May 13, 2015

Boeing Looks to Turn Backlog into Growth

Juliet Van Wagenen

[Avionics Today 05-13-2015] At the 2015 Boeing Investor’s Conference on Tuesday, the company’s Chairman and Chief Executive Officer Jim McNerney provided top line expectations regarding whether the aerospace market would begin to see some decline. While the company saw a drop in cash flow as well as delays in 787 production for American Airlines aircraft during the first quarter 2015, McNerney dispelled rumors that Boeing was seeing deterioration in commercial aircraft pricing with a defiant “No.”

Boeing Headquarters
Photo: Boeing

“Every sale is highly competitive for sure, but pricing is holding up well due to the value of our airplanes and what they bring to the marketplace even in model transition environments: 737 to Max, 777 to 777X,” said McNerney.

Regarding concerns about the whether the low cash flow would indicate a less-than-solid year McNerney pointed to the original 2015 outlook, which suggested a light first quarter and heavier cash flows around the end of the year.

“Bottom line: there’s no change in 2015 cash guidance and we see cash flow continuing to increase in 2016,” McNerny said. “Airlines are increasingly profitable and therefore more likely to have the resources they need to buy new technology,” he added, underlining that cancellations and deferrals are at all-time lows and placement demand — demand not tethered to Gross Domestic Product (GDP) growth but instead tethered to buyers who want to see a quick payback on an investment in new technology — now represents about 50 percent of deliveries. “That’s solid stuff because of the quick payback,” he said.
 
The company is also reaping the benefits of a solid growth in air traffic, which is seeing a global uptick in demand at about 5 percent a year.

When it comes to the delays for the company’s in-production 787 for American Airlines and the newly integrated U.S. Airways, the executives denied that the delays were “harbingers of a change in cycle.”

“The answer is pretty straight forward as we see it in that nothing about our fundamental view of the market has changed. Demand for our new airplanes remains high,” McNerney said.

According to CEO of Boeing Commercial Airplanes Ray Conner, American delayed delivery of five Dreamliners scheduled for next year into 2017 and 2018, in order to more efficiently equip the aircraft for airlines’ needs as the two transition into a single company.

The Dreamliner has also seen some trouble from United, who converted an order for 10 787-9 jets just last month in favor of the same number of 777-300ERs in the midst of modifications to its fleet renewal plan. The airline has said that the new wide-body 777 aircraft will provide "attractive up gauge and range opportunities," according to a release at the time of the announcement.

Boeing doesn’t seem to harbor any hurt feelings from the conversion, however.

“[United’s conversion] facilitated us getting back some very valuable positions on the 787. All-in-all, everyone leaves with this fantastic win-win solution,” said Connor, noting that both the American and United events left the backlog unchanged.

That backlog amounts to 5,715 aircraft orders for the quarter, which Boeing CFO Greg Smith attributes to both a strong marketplace and robust portfolio. As the backlog continues to gain, the company has announced careful plans to ramp up production in the coming years to expedite deliveries of the Dreamliner and 737 MAX.

Boeing 787 production, in particular, will see an increase with Smith noting the company will pick up production from its current 10 per month to 12 next year and 14 per month by 2020.

“787 is stable now at 10 a month and we are focused on capturing efficiencies throughout the entire system,” Smith noted.

The 737 is already seeing increases as well, with rate hikes planned for coming years.

“Driven by the robust demand for our 737 we had the opportunity again to increase the rate to 42 per month. Our teams have completed this rate hike seamlessly and are already working on increases to 47 in 2017 and then eventually to 52,” said Smith. “This is all taking place in the same footprint that we delivered 19 a month.”

Everything considered, Boeing sees a strong year on the horizon for 2015 and beyond.

“When you step back I’d say 2015 represents an exciting opportunity for us,” said Smith. “We are well positioned, the markets we serve are strong and growing, and we have the right portfolio meeting our customer requirements.”

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