787 Deferred Production Cost drop by $1.06 bn as Boeing prioritizes 787 sales.

Boeing reported its 2nd quarter financial performance and it seems that things are a little bleak.

First off the continued issue with the 737 MAX has Boeing considering slowing down or even completely stopping production on the aircraft until it is re-certified and back in the air.  They've been producing the aircraft and then parking them all over the Pacific Northwest.  The higher margins from the 787 program has helped partially offset the 737 MAX financial hit.

They also announced that the 777X first flight has been pushed to early 2020 from late 2019 due to the continued GE9X issues.  There is a huge amount of schedule risk in that program.

Not to mention that Airbus seems to be getting the better of them in the NMA/A321 market where Boeing has yet to launch their new widebody aircraft.

The 787 program is a bright spot as Boeing did report that the deferred production cost dropped by over $1 bn to $20.969 bn. Last quarter the deferred production cost was around $22.029 bn. The main issue for Boeing is getting more orders for the 787.  Currently the remaining backlog of 787s is 581 airplanes which is about 3.5 years of production at the current rate.  The word out on the Street is that Boeing is willing to trade away some 777X orders with Emirates in exchange for the 40 787-10 that they signed an LoI for in 2017.  Boeing did note that recent orders from Air New Zealand, Korean Air and Air Lease Corp. has bolstered the 787 skyline but they do need to make a more aggressive push for more orders or they would have to look to cutting production.  They are aiming at the widebody replacement market as a source of new orders down the road.

Air New Zealand Buys 8 787-10 to replace 777-200ERs

Boeing Photo

As expected, the 787-10 beat out Airbus' A350 to replace the 777-200s in their fleet.  Air New Zealand announced the order for 8 787-10 along with options for a further 12 today (May 27th New Zealand time).  The new 787 order will take their Dreamliner fleet to 22 after the last airplane is delivered.

Deliveries of the 787-10 will start in 2022 and run through 2027.

While the 787-9 and 787-10 are 95% compatible, Air New Zealand opted for the GE engines on their 787-10 while their 787-9 fleet will operate the Trent 1000 engines.  Rolls Royce has been having numerous issues which have grounded Trent 1000 powered 787s worldwide including those of Air New Zealand.  I guess they had enough of the issues with the Trents. This is  a firm order and the order does allow ANZ substitution rights between the 787-10 and the 787-9.

Boeing Photo

787 Deliveries make come back prior to 3rd quarter end. Boeing delivers 34 Dreamliners in 3rd Quarter, short by 2.

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	Number
Testing Complete	3
To be assembled in Everett	63
To be assembled in Charleston	59
Parts Arriving	6
Undergoing final assembly	6
Storage	2
Storage/Change Incorporation and Re-Work	0
Change Incorporation and Re-Work	2
Pre-Flight Prep	10
Production Testing	6
Non Customer Flight Tests	0
Ready for Delivery	0
Donation	3
Delivered	742
TOTAL	902

With the end of the 3rd quarter looming for Boeing and the 787 program, the company was able to deliver 18 787s ( 2 x 787-8 and 16 x 787-9) in September with 11 of those aircraft being delivered between Sept. 28th and Sept. 30th.  Despite the flurry of deliveries at the end of the month, Boeing delivered on 34 787s in the third quarter (4 x 787-8 and 30 x 787-9) which is 2 units short of the 36 that is expected given the current production rate.  For the year Boeing has delivered 106 787 (8 x 787-8, 92 x 787-9, 6 x 787-10).  This number is also 2 short of a delivery rate of 12 per month.  In order to catch up, Boeing will have to deliver 12.67 787s per month during the 4th quarter, a task which should be easily accomplished if it weren't for the continued issues with the Trent 1000 engines which had another issue crop up.  Of the 18 787s delivered last month, 5 were delivered directly to Hainan Airlines (though two of them are still at Everett awaiting their delivery flights, they have been contractually delivered).  Hainan took an additional 787-9 on lease from Bank of Communication Leasing (1 of 2 that the lessor had purchased). Shanghai Airlines (China Eastern subsidiary) took belated deliveries of three 787-9s after late arriving seats were installed. Eva Airway's first 787-9 leased from Air Lease Corporation was also delayed due to late seats but was finally delivered at the end of the month. Air New Zealand took their first leased 787-9 while also receiving their 12th and last direct purchased 787-9.  It's important to note that both Everett and North Charleston delivered 9 787s each but for North Charleston this certainly eases the pressure especially with the seats supplier issues hopefully a thing of the past.

On the production front the 787 rolled out 10 new aircraft while starting final assembly on 11.  This is a slightly lower rate perhaps bought down by the effects of Hurricane Florence which caused a short duration shut down of Boeing's North Charleston final assembly operations.  That facility was able to push out 4 airplanes while starting assembly on 5 airplanes.

Lastly, Boeing had just announced their orders for September with some interesting (and confusing) revelations.  First of all Boeing picked up 15 new orders including 9 x 787-9 from United Airlines along with a couple of small unidentified customers who orders 3 and 2 787-9 respectively.  China Development Bank seems to have cancelled an order for 6 787s which is an order they placed only last year.  Interestingly, Boeing classified three airplanes for Avolon and CIT as unidentified.  This is strange as they are n=ow saying that we are not going to identify customers we've already identified!  Finally, it appears that a GECAS's for 6 787-9 is now 5 but Boeing Capital Corp. shows a new order for a 787-9.  I'm thinking that GECAS transferred the order to BCC.  Boeing's order book currently stands at 1,398 aircraft of which 742 have been delivered.

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