Boe­ing down­plays 777 pro­duc­tion cut

Financial Mirror (Cyprus) - - FRONT PAGE -

At a brief­ing last week in ad­vance of the Paris Air Show, Boe­ing Co. (NYSE: BA) ad­mit­ted — sort of — that the com­pany will have to cut pro­duc­tion of the cur­rent ver­sion of its 777 pas­sen­ger plane in 2018 as it tran­si­tions to build­ing the new 777X, which is due for de­liv­ery to cus­tomers in 2020. Pre­vi­ously, the com­pany had main­tained that no changes were planned to the cur­rent build sched­ule of 8.3 planes per month (100 per year) un­til the 777X en­tered ser­vice. This is a big deal be­cause the 777 is one of the most prof­itable, if not the most, of Boe­ing’s com­mer­cial planes. A 777-300ER car­ries a list price of $330 mln and prob­a­bly sells for around $165 mln.

The Boe­ing ex­ec­u­tive run­ning the 777 pro­gramme said at the brief­ing that the com­pany “will feather in some blanks” as 777X pro­duc­tion ramps up. What that means is that Boe­ing will leave holes (“blanks”) in its 777 pro­duc­tion line to ac­com­mo­date the tran­si­tion to the new 777X. Those blanks give work­ers some ex­tra time to ad­just to build­ing the new model. Those blanks also mean that Boe­ing will not be sell­ing cur­rent ver­sions of the 777. That trans­lates to less rev­enue, less profit and, per­haps most im­por­tant, re­duced cash flow.

The com­pany has per­suaded an­a­lysts and in­vestors to fo­cus on cash flow, so any threat to cash flow is not a good sign. Full-year op­er­at­ing cash flow be­fore pen­sion con­tri­bu­tions in 2014 to­taled $9.64 bln, down slightly from $9.72 bln in 2013. Free cash flow rose from $6.08 bln in 2013 to $6.62 bln in 2014. The com­pany projects op­er­at­ing cash flow for 2015 at more than $9 bln. Adding blanks to the 777 as­sem­bly line will not hap­pen for a while yet, but Boe­ing’s ex­pla­na­tion has left ex­pe­ri­enced an­a­lysts won­der­ing what the com­pany is try­ing to say.

Boe­ing also has fig­ured out a way to add 14 seats to the 386 typ­i­cally avail­able in the 777-300ER. The com­pany has also re­duced the weight by 1,200 pounds, ac­cord­ing to a re­port at Bloomberg, and made other changes that are ex­pected to boost the 777-300ER’s fuel econ­omy by about 5%. The up­grades are ex­pected to be avail­able next year.

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