Programme delays damage Boeing’s 3Q2009 results, order deferrals accelerating – Suppliers Share Wrap

Boeing’s shares dropped 2.4% in trading yesterday, as the company announced a USD3.6 billion charge to its 3Q2009 results related to reclassification of costs associated with the B787 and more delays to the B747-8 development programme (which was already in a loss position).

The manufacturer admits that the disappointments in the programmes, and the subsequent financial charges, have overshadowed what CEO, Jim McNerney, termed a “solid performance” in the quarter. Revenue was up 9% year-on-year in 3Q2009 to USD16.9 billion (due in part to the impact of last year’s machinists strike, which cut revenue in 2H2008 by an estimated USD2.1 billion), but Boeing reported an overall USD2.2 billion operating loss in the period. Net loss for the period was USD1.6 billion, helped by a USD687 income tax benefit.

Boeing Commercial Airplanes plunges to USD2.8 billion loss, deferrals accelerating

Revenue at Boeing Commercial Airplanes (BCA) rose 13% year-on-year, to USD7.9 billion. However, operating profit at the unit plummet to a USD2.8 billion loss, compared to last year’s USD394 million profit. Deliveries in the quarter were up, 114 in 3Q2009 compared to 84 in 3Q2009 (again due to the last year’s machinist strike and supplier problems). The manufacturer booked 96 orders in the quarter and saw 17 cancellations. BCA also accommodated approximately 85 aircraft deferrals during 3Q2009, in addition to 130 during 1H2009.

Boeing is now confident that the B787 will fly before the end of 2009, and has already begun working on the solution to the side-of-body joint problem, which delayed the planned Jun-2009 test flight. First delivery is scheduled, to All Nippon Airways, in 4Q2010. Both these targets will be crucial for Boeing, which is struggling to rebuild confidence from both customers and investors.

Boeing has 840 orders (including ten cancellations taken since the end of 3Q2009) from 55 customers for the B787, but could see this number shrink even further, having already lost 80 orders for the aircraft this year, Earlier this week, Air Astana declared its MoU for three B787s and three options as “inactive”, due to uncertainty about deliveries. Other carriers are taking a wait-and-see approach, with many orders reportedly hinging on the test flight. Boeing expects continued “modest churn” for the aircraft.

Military and Capital unit results mixed

Boeing’s Integrated Defense Systems reported a 3% increase in revenue, to USD8.7 billion, while earnings were up 4$, to USD885 million. The 10.1% operating margin represents strong performance in Boeing Military Aircraft, where revenue rose 7% and earnings were up by a quarter.

Revenue at Boeing Capital Corporation fell 3% to USD166 million, although earnings were up 5% to USD39 million.

Cash flow pressures ahead

The company’s 2009 operating cash flow remained at greater than USD2.5 billion, but it expects pressure on its 2010 cash flow, as inventory continues to build on the B787 programme. This pressure is expected to be relieved somewhat in 2011, as deliveries of the B787 and B747-8 ramp up.

Boeing is maintaining its revenue guidance of USD68-69 billion for calendar year 2009, but has cut its earnings-per-share outlook from the previous USD4.70-5.00 to USD1.35-1.55 per share, due to the B787 cost reclassification and USD1 billion charge associated with the B747-8 delay.

The manufacturer expects to deliver 480-485 aircraft in 2009, but forecasts a loss for its commercial aircraft division of USD850 million to USD1 billion. 2010 will be all about getting the B787 and B747-8 both in the air and into the fleets of customers.

Selected Aviation suppliers’ daily share price movements (% change): 21-Oct-09