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26 October 2006

3Q 2006

Earnings day tends to be a big event around Boeing. Yesterday was no exception.

And as we heard from company leaders, our third quarter results reflect Boeing’s continued focus on executing our business plan and keeping our promises to our customers.

During the quarter, we delivered 100 airplanes, as we successfully increased our production rates. BCA’s contractual backlog expanded to a record $154 billion - which is more than five times the current annual BCA revenues.

We booked 243 orders during the third quarter. Our year-to-date net order total is now 773 as of today.

And the 787 Dreamliner continues as the most successful commercial airplane launch in history - with 432 firm orders now, from 34 customers.

We’ve acknowledged many times that new programs are not without their challenges. And as you may have read in the news coverage, we’re raising our research and development forecast in response to some challenges on the 787 program – as well as in response to the increased scope and customer-inspired changes on the 747-8 program.

The increased 787 R&D funding supports smart contingency planning. We continue to work to reduce the airplane’s weight, and we’re helping some of our partners get their production system up and running.

We’re also setting aside money that would allow us to quickly address other issues that may come our way. We know we’ll have some. As I said, new airplane programs always do. But we’re confident we’ll successfully work our way through them.

As our CEO Jim McNerney said yesterday, the 787 will be done on time and will be done in line with contractual commitments.

747-400 Large Cargo Freighter photo

Earlier this month, in Everett, we opened the unique tail door of the 747-400 Large Cargo Freighter for the first time. The LCF will play a “huge” role in the 787 production system.

The 3Q earnings report also points out that we’ve achieved some important development milestones this past quarter - such as the arrival in Seattle of the Large Cargo Freighter - as we head toward 787 flight testing next year and entry into service during 2008.

We also delivered our 2,000th Next-Generation 737 airplane, and saw the successful first flight of the new 737-900ER.

We’re on track to a projected 395 deliveries this year and are virtually sold out to our guidance of between 440 and 445 deliveries for 2007.

BCA President & CEO Scott Carson told employees that it all points to the fact that customers continue to validate our product line of lighter, faster, more fuel-efficient airplanes, and are responding to our market-leading customer support.

I think it’s been a good quarter.


16 October 2006

Added revenue

Since the successful launch of the 747-8 program last year, and the great response to the freighter (44 freighter orders from five customers to date), as well as orders for 3 VIP models, we've been having more and more detailed discussions with our customers about the passenger version, the Intercontinental.

As we've been refining the configuration of the 747-8, it turns out we've come up with more efficiency in the wing design. And the result of that efficiency has meant more range on the passenger airplane, beyond the original 8,000-mile range that we had targeted for - with a capacity for 450 passengers and baggage.

During our recent discussions with customers about adding more range, they've told us that the original range target is fine, and that what they prefer is that we put the efficiency gains into more "payload" - in other words, more passenger capacity.

I've said many times, that we listen closely to what our customers tell us. So what we've decided to do is to configure the 747-8 Intercontinental to be the same length as the 747-8 Freighter, or a length of 250 feet, 8 inches (76.4 meters).

baseline configuration for the 747-8 

Intercontinental image

Our baseline configuration for the 747-8 Intercontinental brings it in line with the length of the 747-8 Freighter. Compared with the 747-400, the 747-8 Intercontinental will have a 4.1 meter "stretch" in the forward sections, and a 1.5 meter "stretch" in the mid-section, increasing the seating capacity for the passenger model to 467 seats.

This two meter addition to the initial baseline length for the 747-8 Intercontinental will allow for another 17 seats to be added. So the 747-8 Intercontinental will now be 467 seats, rather than the earlier baseline configuration of 450 seats.

Just think, more than 50 additional seats of potential passenger revenue compared with the 747-400 - all the while having 15% lower fuel consumption, and 10% lower cash operating costs per-seat.

But what remains from our original baseline is the 8,000 mile range, with full passengers and baggage, as well as meeting QC2 noise requirements, and with all the interior improvements based on the 787 interior - for unprecedented passenger appeal.

While this is our new baseline now for the 747-8 Intercontinental, firm configuration is not until next year. And it's important to keep in mind that this airplane is still aimed at the target market for the 747, which is between 400-500 seats. It's what our customers have asked for - a new 747, with commonality and compatibility with today's 747 fleets.

The way I like to think of it is, with greater revenue-generating capability, we're just making an efficient airplane even more efficient.


12 October 2006

Good as gold

Typically when I'm out talking about commercial airplanes, what seems to get all the attention is our strategies and our newest products.

But another big piece of the story is services and support. I haven't talked much about this side of the business here in the blog, but I think it's a very important part of what we do. And it's a key to helping our customers operate their airplanes as efficiently as possible.

I often talk about how liberalization has caused airlines to change their strategies - as new competition intensifies the focus on serving passengers. This has also caused airlines to look inwardly, at the efficiency and viability of their whole business models.

And what we've seen over time is the industry going from a "vertically-oriented" model - where an airline did everything itself - to a more "horizontal" model, with things being outsourced. Or in some cases an airline deciding to stay in the maintenance business while also looking to provide that service to other airlines.

All of this means that airlines are looking more closely at what we call life-cycle issues. They're striving to streamline their maintenance and services on a global basis, as they move away from an inefficient system that often duplicated maintenance facilities and spares inventory.

So where am I going with this, you ask?

Well, we think that the life-cycle area is a realm where Boeing can help airlines be more and more efficient. We've been involved in this process for a number of years, but as you may have read, the Boeing 787 program is taking this kind of service a step further with GoldCare.

Boeing 787 Dreamliner in flight image

GoldCare can help any 787 operator become a lower-cost carrier.

Airline CEOs are looking for ways to maximize the "horizontal shift." And that's why we came up with GoldCare. The idea is that from Day One, Boeing's global team will maintain customer airplanes in a ready-to-fly condition at a predictable cost.

A GoldCare customer will know exactly what the maintenance bill and the level of airplane availability will be. And the airline CEO can then focus his or her team on adding value in areas such as passenger service.

Bottom line: our relationship with our customers and our airplanes doesn't end at delivery time. GoldCare provides experienced people, IT, infrastructure, and training for maintenance and parts support. That all reduces cost and complexity, especially when you're introducing a new airplane type to the fleet.

Right now we're talking with customers, leasing companies and financiers about GoldCare and we've signed on four initial partners - SR Technics, Smiths Aerospace, Hamilton Sundstrand and Rockwell Collins.

Since, say, a 787 Dreamliner under GoldCare will be closely monitored and maintained by Boeing and its team of specialists, we think GoldCare planes will be more valuable, and potentially more attractive to finance. And that's a business model we think helps any customer become a lower-cost carrier.

The 787 is breakthrough technology for sure. And ultimately we think that GoldCare is going to be just as innovative as the Dreamliner itself. Put them together and I think you have a truly compelling competitive advantage. You might say, a new "gold standard!"


06 October 2006

Staying focused

The production issues in the news concerning the A380 program have led to the usual questions for me and many others here at Boeing. As can be expected, in the media there's some intense interest in the question of "what does this mean for Boeing?"

Well, I've said this before, in response to reporters' questions, and in many forums around the world: It doesn't mean a whole lot. As I see it right now, there is no direct benefit for us coming from the Airbus announcements on the A380, particularly in the near-term. We have a very sound backlog and full production lines - and we're quite pleased already with the response from the market to our 747-8.

The very large airplane segment, by the way, is a very small piece of the bigger whole. Which is why we didn't pursue a direct competitor to the A380 in the first place.

At the most fundamental level, what truly benefits Boeing is strong competition in a healthy commercial airplanes industry. Let's remember, Boeing and Airbus share many of the same customers and suppliers in a relatively small industrial "ecosystem." Our industry, the traveling public, and the global economy all do better when that ecosystem contains healthy, competitive companies creating value day in and day out.

Yes, it's a tough time right now for EADS/Airbus. But they'll get through it. And we expect them to be strong competitors for a very long time.

As for BCA, we are staying focused on the needs of our customers, on the execution of our business plan, and on delivering on our promises.