787 Delay Masks Strong Boeing Earnings
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Joseph C. Anselmo janselmo@aviationweek.com
Michael Mecham mecham@aviationweek.com
In different circumstances, the strong second quarter earnings results issued by Boeing this morning would be received enthusiastically by investors.
In the midst of the worst financial crisis since the Great Depression, second quarter net income was up 17% from the same period a year earlier and the company eked out a 1% sales gain. But while those results bested Wall Street's consensus estimate, most investors are fixated on something that Boeing couldn't deliver - an update on how long the first flight of its troubled 787 jet will be delayed and how much of an impact that will have on future earnings. "Second quarter earnings per share beat our estimate and consensus, but with the absence of a new 787 schedule, we see this largely as a non-event," said JPMorgan analyst Joseph B. Nadol.
Boeing delayed a scheduled first flight of the 787 last month after a static test failure in the aircraft's wing-body join area that had not been anticipated in computer modeling, embarrassing company executives, who had maintained that the program was back on track after five previous delays. Faced with question after question about the delay in an earnings call with analysts and journalists on Wednesday morning, Chairman and CEO James McNerney sought to downplay rumors that the fix would be costly and time consuming and could involve a redesign of the 787's wing. "We have learned nothing that says anything other than this is a local issue with a local fix," he said. "&.We do not see a systemic issue with the entire wing."
But four weeks after the latest delay was disclosed, McNerney could provide no details about how long the problem will set back the 787 flight test and delivery schedule. "The team is making solid progress toward resolving this issue&we'll be in a position [later] this quarter to talk about those impacts," he said.
McNerney also faced several questions about how the static test failure could have taken Boeing managers by surprise at the 11th hour. "Bad news doesn't appear to flow up," said Bank of America/Merrill Lynch analyst Ron Epstein.
"This is not an issue of information flow," McNerney responded. "It's an issue of the thousands upon thousands of tests we do....One of them turned up wrong that we didn't anticipate."
Among other highlights in the company's second quarter earnings:
*McNerney said there is "no change" in Boeing's position that it can maintain 737 narrowbody build rates at 31 per month.
*The company had 57 orders for commercial aircraft during the quarter but lost 52 previous orders, for a net of five. In addition, there were 70 delivery deferrals in the second quarter, adding to 60 in the first quarter. But the company says its backlog of deferral requests is declining.
*Revenues at the Integrated Defense Systems unit were up 3% from a year earlier and margins came in at 10.1%.
*Company-wide, backlog declined 3% to $328 billion as deliveries outpaced net orders, but still stands at nearly five-years worth of sales.
*Boeing has significantly reduced aircraft inventories since last year's machinists strike, but 787 inventories will continue to build until first deliveries begin.
Boeing also disclosed that it has eliminated 5,000 positions since last November and is on plan to raise that to 10,000 by the end of the year.
Photo credit: Michael Mecham
