By Jon Ostrower And Doug Cameron
Boeing Co. executives moved to reassure investors that jetliner
demand remained intact as it plans further production increases
alongside an expanded cost-cutting program.
Slowing economic growth in emerging economies and recent moves
by two U.S. airlines to defer new aircraft buys and continue flying
older planes haven't altered strong demand, Boeing Co. Chief
Executive Jim McNerney said Tuesday.
"Nothing about our fundamental view of the market has changed,"
Mr. McNerney said at Boeing's annual investor day in Chicago.
Concerns about economic growth, over-ordering and a sharp drop
in jet fuel prices have unnerved some investors about the ability
of Boeing and rival Airbus Group NV to sustain higher production
rates, and though the oil benchmark has climbed in recent days,
fleet planning changes by the parents of American Airlines and
United Airlines added to the concerns.
Boeing is enjoying unprecedented demand for new jetliners,
driven by the need to replace older fleets. Mr. McNerney said
requests for cancellations and deferrals remained at historic lows,
and pricing was steady as it targeted securing as many new orders
for jets this year as it delivers, known as the book-to-bill
ratio.
Following the protracted and expensive development of its
advanced 787 Dreamliner, Boeing has moved toward increasing
incremental updates to its existing aircraft, rather than undertake
all-new designs. Boosting jet production and lowering costs are
central to Boeing's effort to increase profits and shareholder
returns, and buybacks remain a key priority for the company, which
repurchased $2.5 billion in stock during the first quarter.
Mr. McNerney said the notoriously cyclical jetliner business has
been fueled by pent-up demand held back in the years following the
Sept. 11, 2001, terrorist attacks and stimulated by new technology
on its 787. The result, he said, is a "supercycle" where expanding
output and orders drastically outpaced an increase in flying. Mr.
McNerney expected those production increases to moderate by the end
of the decade, more closely matching a 5% annual increase in air
travel.
"If there are no other [geopolitical] events" that disrupt
demand, "that's the rate at which our production rates will be
growing. I think it's not a matter of predicting a dip, it's a
matter of returning to production rate increases that align with
demand," he said.
Boeing has further expanded its cost-cutting push--known as
Partnering for Success--to 500 suppliers from 150 and boosted the
target for trimming expenses at its defense arm by an additional $1
billion, building on $5 billion in reductions already implemented.
The aerospace giant has assigned 400 engineers to work with
suppliers to make their operations more efficient.
Highlighting both the increasing demand and necessity of
building more efficiently, Boeing Commercial Airplanes Chief
Executive Ray Conner said the company will build 52 737s a month in
2018 inside the same industrial footprint at its Renton, Wash.,
factory as the one where it built 21 of the single-aisle jets each
month early last decade. Mr. Conner reiterated the company's plans
to accelerate output and said its industrial plans could
accommodate as many as 60 737 jets each month, but that higher
output would depend on market demand.
"You can take these rates down, you can take them up and still
maintain the kind of efficiencies that you've seen with the higher
rates," said Mr. Conner. "You create a lot of flexibility to
respond to the market in a way without throwing your cost line off
and being able to maintain your margins. Your revenue line may
change a bit, but your margin line won't."
At the end of the first quarter, Boeing had more than 5,700 jets
on order worth $435 billion at contractual prices.
The shares were recently down 0.2% at $145.65, narrowing earlier
losses and in line with the decline in the broader market.
Write to Jon Ostrower at jon.ostrower@wsj.com and Doug Cameron
at doug.cameron@wsj.com
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