Boeing optimistic about 2011 despite 21% second quarter profit drop

The 787 at Farnborough. Photo: Courtesy, Geoffrey Thomas.

Boeing reported second quarter net income of $787 million, down 21% from $998 million in the year-ago period, and expressed optimism regarding potential revenue growth in 2011 even as it repeated its warning that planned first delivery of the 787 to ANA in the fourth quarter may be delayed by "a few weeks."

Chairman, President and CEO Jim McNerney told analysts and reporters that "most of the margin is gone" on the 787 flight test program and cautioned that "we could see first deliveries move into early 2011." He emphasized there "are no design issues, no configuration issues" slowing the testing program. "There were a couple of instances where the workmanship was not what we wanted it to be," he explained.

Nevertheless, he was upbeat on the recovering economy and Boeing's prospects for growth next year, with passenger and airfreight demand rebounding and "new sources" for aircraft financing becoming available. "The level of [economic] uncertainty has moderated," he said.

But the company has not yet decided whether it will announce further production increases later this year, particularly in the 737NG line, he noted. Last month, it announced a bump to the 737NG production rate to 35 per month in early 2012, up from 31.5 currently (ATW Daily New, June 16). Whether that production rate will "go north of 35" may depend more on supply chain issues than market demand, McNerney said.

Some suppliers would have to "make investments in equipment" if the 737NG production rate is raised further, he said, adding that the company is targeting the fall to make a production rate increase decision. "We have to have clarity on the supply chain's capability," he said.

The manufacturer is also aiming to make a decision later this year on whether it will re-engine the 737 or launch a successor aircraft program. If a new aircraft can "come together … sometime this decade, then the case for re-engining reduces dramatically," McNerney said. "On balance, customer feedback is pushing toward a new airplane."

Second-quarter revenue lowered 9% to $15.57 billion while expenses excluding $1 billion in R&D costs decreased 9.2% to $12.54 billion. The manufacturer said operating income fell 15% to $1.31 billion from $1.53 billion in the year-ago period.

Boeing Commercial Airplanes second-quarter revenue lowered 11.9% to $7.4 billion on 9% fewer aircraft deliveries (114 compared to 125 last year) "driven by anticipated seat supplier challenges and lower planned widebody deliveries," the company stated.

BCA booked 88 gross orders during the quarter while 20 orders were removed from its backlog, leading to net orders of 68, expanded from five net orders in the 2009 second quarter. Its backlog as of June 30 stood at 3,304 aircraft valued at $252 billion. BCA's full-year 2010 delivery guidance remained unchanged at 460-466.