Boeing looks to keep pace with surging airplane sales
Thursday, February 2nd 2006, 9:44 am
By: News On 6
CHICAGO (AP) _ A boom in new airplane orders that boosted earnings 37 percent last year has placed Boeing Co. just behind Airbus in its bid to retake the world's top spot in commercial aviation. Now comes the hard part: Making all those planes.
Boeing officials and analysts agree that keeping pace with the record 1,029 new jet orders it booked last year _ while beefing up profitability in the process _ is key to Boeing's prospects for 2006.
``Execution is the story,'' said analyst Cai von Rumohr of SG Cowen Securities. ``It's not just what the orders are. It's what you can make out of them.''
Investors on Wednesday gave Chicago-based Boeing a vote of confidence that it could keep the assembly lines humming. Its share price flirted with an all-time high after Boeing upped its 2006 profit forecast.
Boeing officials sought to assure investors that they could handle the record $124 billion in back plane orders. They also offered an upbeat view of future demand for Boeing's commercial planes.
``Our focus is on executing on that backlog better than we ever have, and increasing the backlog at the same time,'' Boeing Chairman and CEO Jim McNerney said during a conference call Wednesday. ``We are focused like never before on productivity and growth.''
Better productivity has been McNerney's mantra since he arrived at Boeing in June. He said Wednesday that the company would achieve that partly through new initiatives aimed at squeezing out costs from its supply chain and broadening lean manufacturing techniques that have streamlined production.
Some aren't so sure.
``We remain concerned about the ability of (Boeing's) suppliers to meet the ongoing plans for production increases,'' Bank of America analyst Nick Fothergill wrote in a note to clients.
When asked about suppliers being able to keep pace, McNerney said Boeing has taken careful steps to prevent a production bottleneck, calling it ``one of Boeing's big ... issues to make sure we get right.''
Analyst Mark Davis at FTN Midwest Research said Boeing has made strides in recent years to boost efficiency and whittle down production costs at its Seattle-based commercial airplane unit. He expects more of the same.
``Everybody wants to see them blow out more airplanes,'' Davis said. ``But I think they're being very cautious here and are making sure everything is in order.''
The swelling airplane backlog is a good problem to have, Morningstar analyst Chris Lozier said in a note to clients.
``Deliveries of these aircraft will yield robust cash flow for years,'' he said.
The record year for jet orders was buoyed by 379 orders for its fuel-efficient 787 Dreamliner. The strong demand for the 787, due out in 2008, helped Boeing close the gap on Airbus, which surpassed Boeing in order volume beginning in 2001.
Toulouse, France-based Airbus unexpectedly beat Boeing's tally for jet orders last year. But Boeing eclipsed Airbus in value terms after winning 70 percent of global orders for larger, pricier planes like the 787.
Boeing reiterated its expectation to deliver 395 planes in 2006, though McNerney said it likely would fall short of the 1,029 orders it booked last year.
The outlook for Boeing's defense business isn't quite as rosy.
McNerney said Wednesday that sales growth at its defense unit could ebb some in coming years as U.S. defense spending slows. He said a consolidation of its defense business units announced last week should help offset the slowdown through cost cuts and better productivity.
The defense side of Boeing's business last year posted a record $3.9 billion in operating earnings, 33 percent higher than a year earlier. Defense revenue also hit an all-time high of $30.8 billion.
Commercial airplane operating profits jumped 90 percent in 2005 to $1.4 billion on improving margins, despite a four-week strike at its airplane production facilities.
Overall, Boeing's 2005 net profits grew 37 percent to $2.6 billion. Earnings amounted to $3.20 a share in 2005 versus $1.87 billion, or $2.30 a share, a year ago.
The strike shaved off $2.3 billion in annual revenue, which still grew 4.3 percent from a year earlier to $54.8 billion.
Boeing's fourth quarter net income was $460 million, or 58 cents per share, up from $186 million, or 23 cents per share a year earlier. That was well beyond the 44 cents a share analysts were expecting, based on the average estimate by Thomson Financial.
The year-ago profit was depressed by heavy charges for ending production of its 717 jet and writing off its loss of a controversial Pentagon contract for air tankers.