Boeing to Raise Dreamliner Output 17% in Boost to Cash Dream (1)
(Bloomberg) -- Boeing Co. will raise production of its 787 Dreamliner in 2019 and bolster a key accounting measure that will improve the plane’s long-term profit margins, Chief Executive Officer Dennis Muilenburg said.
Both moves signal Boeing’s confidence that the carbon-composite jetliner will continue to generate strong sales despite a tough market for long-haul aircraft. The aerospace company is starting to fill in its 787 order book as far ahead as 2022, and that’s before a wave of wide-body jet replacements that should spur sales next decade, Muilenburg said at a Morgan Stanley conference Wednesday.
“That’s an important step for us and another signpost of the strength of the marketplace,” Muilenburg said of the plan to boost Dreamliner production to 14 planes a month from the current pace of 12.
The existing tempo is already the fastest on record for a twin-aisle jet, and some analysts have expressed concerns that a quicker production tempo would burn off the 787’s backlog, to be followed by a rate cut that would hurt suppliers. But swifter output will help Boeing generate more cash from its most-advanced plane as the company slows output of the 777 before transitioning to a new model.
“It’s just another positive for the Boeing story,” said George Ferguson, an analyst at Bloomberg Intelligence.
The planemaker is riding atop the Dow Jones Industrial Average this year as it largely avoids new-aircraft development stumbles that have plagued Airbus SE. Boeing is also making good on a pledge to boost shareholder returns now that the 787 program is finally generating cash after a decade of losses. After Muilenburg’s pronouncement, the shares reversed an earlier decline and advanced 0.5 percent to $241.74 at 3:01 p.m. in New York.
While sales of most wide-body jets slumped last year because of cheap oil and an influx of inexpensive second-hand models, there’s still healthy demand for the 787, the first commercial jet made mostly from spun carbon fibers instead of aluminum. The Dreamliner has netted 78 aircraft orders this year, and that doesn’t include tentative deals such as the agreement for eight of the wide-body planes announced Tuesday by Malaysia Airlines Bhd.
The Chicago-based manufacturer is also increasing the accounting block for the 787 that it uses to calculate expected sales and profitability of the aircraft under program-accounting rules, Muilenburg said. The company is adding 100 units for a total of 1,400 sales for the Dreamliner. Doing so will give Boeing a greater number of aircraft sales over which to spread the nearly $30 billion in production costs amassed on the Dreamliner.
The production-rate increase and accounting change will help Muilenburg move Boeing’s commercial-airplane division closer to a goal of “mid-teen” margins by the end of the decade, Ferguson said. The 787 “is probably their worst performing program right now from a margin standpoint,” he said. “Getting that higher is a great thing for the company.”
(Updates with analyst’s quote in fifth paragraph.)
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