BOEING ASSURES SHAREHOLDERS ON HEIGHT OF AMBITION AS IT CHASES EMBRAER DEAL
Plane maker has the ‘cash horsepower’ to meet all objectives as progress is made on acquisition of Brazilian company
The head of Boeing says the US plane maker can absorb transactions on the scale of a proposed tie-up with Brazil’s Embraer without putting at risk internal investments in its business or returning cash to shareholders.
Chairman and chief executive Dennis Muilenburg also said Boeing was “making progress” in talks with the Brazilian aerospace company. It continues to study a number of possible structures for a deal, which some outside analysts have said could value Embraer at $5 billion to $6bn.
“Acquisitions of the scale of Embraer are not only very doable for us, they are also things we can selectively do, aligned with our [cash deployment] strategy,” Mr Muilenburg said.
“We have plenty of cash horsepower to do all three things: invest organically, return to shareholders and then make these targeted acquisitions.”
Boeing is targeting operating cashflow of $15bn and combined research and development and capital expenditure of $5.9bn this year. It has pledged to return 100 per cent of free cashflow to shareholders.
Brazilian President Michel Temer is weighing a proposal for the two companies to forge a commercial aviation venture, his office said this month, after the government opposed an outright takeover of Embraer, which also builds military aircraft, according to Reuters.
“We are not done yet; there is still work to go. But we are making progress, so I am hopeful that we can complete it,” Mr Muilenburg said, reiterating the deal was not a “must” for Boeing.
“We continue to evaluate all parts of the enterprise, different potential ownership structures” that range from support to full ownership, he said. Asked whether such overseas tie-ups were more difficult with rising protectionist sentiment, Mr Muilenburg said Boeing would not let up on its global expansion which, if done strategically, would increase jobs in the United States and abroad.
Speaking in his 36th-floor Chicago office with views across Lake Michigan, Mr Muilenburg declined to be drawn on the issue of steel and aluminium tariffs.
He reiterated his longstanding general support for open trade. “Our position is we want free and open trade. Good solid global trade is good for our business and we are going to be strong proponents of that,” he said.
Mr Muilenburg downplayed concerns of a backlash from China, which has ordered thousands of jets.
Boeing plans to open a new aircraft completion plant in China.
“You see some tough rhetoric, but when I look below the surface, and having talked with both President Trump and President Xi, I think there is a true desire to have a productive trade relationship between the two countries,” he said.
Mr Muilenburg said Boeing had not decided whether to appeal after losing a price dumping case against Canada’s Bombardier, but would sue again if provoked to do so.
He said Boeing was in “no rush” to decide whether to launch a new mid-market jetliner, which could enter service in 2024-25.
“It is a decision we will probably get to over the next year or so,” he said.
The jet is expected to pioneer an advanced production system for Boeing, which is already building on record output of its smaller 737s, Mr Muilenburg said. He said suppliers are keeping up with demand.
Asked about engine makers, most of which have faced technical or management problems in recent years, Mr Muilenburg said: “It is certainly something we are keeping an eye on. I will say that despite some of the challenges you have seen out there, our engine partners have been doing well on our commercial programmes.”
Boeing’s biggest supplier, General Electric, is undergoing a corporate makeover after heavy losses, but it is delivering engines on time for the 737 MAX through its CFM venture with Safran of France, Mr Muilenburg said. Airbus has voiced concern about delays in similar CFM engines.
GE, whose stock was the worst performer in the Dow Jones industrial average last year as Boeing led the index higher, is coping well with the development of a new engine for the 777X jet, he said.
“While it is an area to watch, I feel comfortable with where we are at,” Mr Muilenburg said.
His comments come as all 15 Boeing 787 Dreamliner jets operated by Virgin Atlantic Airways are affected by faults with Rolls-Royce engines that power the wide-body planes, according to the carrier.
Grounding the Trent 1000 turbines for fixes has been “seriously
Having talked with President Trump and President Xi, I think there is a true desire to have a productive trade relationship DENNIS MUILENBURG Chairman and chief executive, Boeing
disruptive”, forcing Virgin to find a number of workarounds, including calling on partner Delta Air Lines and leasing extra aircraft, Shai Weiss, the UK company’s chief financial officer, said in London. As many as three of the 258-seat 787-9s have been taken out of service at one time, according to Bloomberg.
Durability issues with components used in the Dreamliner engine and the Trent 900 that powers Airbus’s A380 superjumbo cost Rolls-Royce £227 million (Dh1.15bn) in charges last year and wiped £170m from cash flow, the London-based manufacturer said last week.
The cash impact could double this year as maintenance activity peaks, and the re-design of problem parts won’t be fully incorporated in the 787 fleet until 2022, Rolls-Royce said.
It estimated in August that as many as 500 Trent 1000s – which compete with GEs GEnx turbines on the 787 – would need early maintenance because of wear issues affecting the fan blades.
After initially relying on Atlanta-based Delta, which has a 49 per cent stake in Virgin, to operate some flights on its behalf while engines received attention, the UK carrier is taking delivery of four 287-seat Airbus A330-200 planes to provide spare capacity, with two already in service.
The leased aircraft, which will be used on flights from Manchester, England, were previously operated by defunct German airline Air Berlin and are being painted in Virgin’s livery while retaining their old lay-out, with the edition of a premium-economy cabin. The planes are on leases as long as four years and may be retained even after the Trent 1000 work is completed, providing a significant boost in capacity.
Virgin has also brought a retired Airbus A340-600 plane back into service to help improve “operational resilience” in peak travel periods.
Asked whether Virgin Atlantic – one of the half-dozen biggest global customers for the 787-9 version of the twin-engine Dreamliner – has been paid compensation for the upheaval, Mr Weiss said the carrier was holding “commercial discussions in private”.
A representative for Rolls-Royce said the company was working closely with Virgin Atlantic and all customers affected by the Trent 1000 issue to minimise disruption.