Wednesday, October 21, 2015

Boeing reports earnings, says rate of deferred production costs is slowing; 787 order drive heads into final quarter



Boeing reported very strong 3rd quarter earnings despite increasing deferred production cost related to the 787 program.  The good news is the costs are coming at a decreasing rate.  Boeing reported that total deferred production costs increased by $577mm (down from $790 mm reported for 2Q15) to $28.3bn (up from $27.7bn reported in 2Q15).  Boeing anticipates that deferred production costs will start to decrease once the rate break to 12 occurs in the 1st quarter of next year.  Along with the increase in rate Boeign anticipates further margin increases as 787 production is increasingly made up of the 787-9 and (later on) the 787-10.  787-9 deliveries already make up the majority of 787 deliveries as over 60% of the total 787-8 order book has been delivered.  However, this doesn't mean that Boeing has given up in reducing 787-8 production costs.  Over the last 230 -8 deliveries, production costs on the -8 have been reduced by 40%.  Production costs on the first 50 -9s have decreased a dramatic 30%.  Boeing is still insisting that it will be cashflow positive on the 787 in the 4th quarter (meaning that they will start taking more money then they are spending to assemble and deliver each 787.  Lastly, Boeing continues to beat up their 787 suppliers in order to wring out additional production efficiencies and cost savings.  They expect to see a step down in supplier pricing during 2016 which will aid in reducing production costs.

Boeing's drive to finish out the 2015 787 sales campaign hits the 4th quarter and it does appear that Boeing is lining up order to announce prior to year end.  Already some potential orders are coming to light: 24 787-10 for Eva Airways which is a coup for Boeing as it was being evaluated against the A350-900 by the airline.  The airline has confirmed it's intention to order the aircraft along with 2 777-300ER.  This order still has to be finalized.  A rumor that had just surfaced today is Air China's intention to order 15 Roll Royce powered 787-10.  The carrier already has 15 787-9 on order the first of which will be delivered next year.  There's no word on when this order will be made public but I wouldn't be surprised if it's part of the huge 300 air frame order China intends to finalize with Boeing.  There are two other Chinese orders that are on the books.  One is a 24 frame order from Hainan for the 787-9 that is currently booked as unidentified.  The first 6 aircraft of this order will be delivered next year in addition to 2 787-9 that will be leased from ALC.  Xiamen Airlines is probably behind the 6 787-9 also listed as unidentified.  They'll take delivery of their first aircraft also in 2016.

One order that was anticipated to be made was Emirates choice for their new twin engine aircraft to replace the 777-200 in their fleet.  Tim Clark did say that they have all the information they need but anticipate making a final decision in 2016.  Lastly, we're still waiting for Boeing to firm up Garuda Indonesia's 30 x 787-9 MoU announced earlier this year at the Paris Air Show.

787 Full Production Table

8 comments:

johnv777 said...

Boeing also finalized the Norwegian order today for 19 Dreamliners.

http://boeing.mediaroom.com/2015-10-22-Boeing-Norwegian-Finalize-Order-for-19-787-9-Dreamliners

larmeyers said...

Could it ever get to the point where there are more -10 orders than just Charleston can handle?

greg smith said...

El al is also due to firm up their order soon..

johnv777 said...

Great News. Woody's Aeroimages reporting that BOTH Kenya frames are now out of storage and on the flight line

donhoman1944 said...

Uresh:

With the status of the two Kenya Airways 787's being changed from "storage" to "ready for delivery" does this mean the financing has been resolved?

HASDENTEUEL Jean said...

Kenya Airways on FR24
http://www.flightradar24.com/BOE662/7cf45c8

Evan Robinson said...

El Al to take 14 Dreamliners

http://www.frequentbusinesstraveler.com/2015/10/el-al-to-add-14-boeing-787-dreamliners-to-fleet/

Uresh said...

It's 15 inlucing 6 on lease.