Eyes are on Boeing over the prospect of a 777X.
Chatter doesn’t cease about the prospect of an Airbus A330neo.
Boeing is in no hurry to proceed with the “7X” and an A330neo is unlikely any time soon, if at all.
Boeing rolled out Ray Conner, the new CEO of Boeing Commercial Airplanes, to analysts in New York yesterday. The first research note we’ve received, from Imperial Capital’s Ken Herbert, portrayed a positive meeting. Below is a synopsis. As we receive more notes, we’ll add those comments.
We don’t like the resumed policy of using cash to repurchase stock, instead of putting it into new airplane programs (something Richard Aboulafia of the Teal Group, normally a pro-Boeing consultant, has roundly criticized for years).
We believe BA is benefitting from several tailwinds, and is demonstrating increased confidence regarding its 787 execution and the ability to take further costs out of the supply chain. However, we believe much of the good news is reflected in BA stock, and we see slowingorders in 2013 as limiting the multiple; therefore, we are maintaining our In-Line rating. Investors areexpecting a significant dividend increase or share repurchase program, which could be a positive catalyst, but we see the new program developments, which include the 737MAX, the 777X and 787-10, as potential competing cash pulls.
Regarding the 787, Boeing confirmed that Charleston is ahead of plan, but that it has been staffed to over deliver. Boeing also made a point of stressing that its movement down the cost curveon the 787 will be similar to that of the 777. We believe that there is an opportunity for Boeing toexceed expectations on the 787.
We continue to believe, however, the much of the execution upside is priced into Boeing stock. We believe that in order for the stock to see material upside, Boeing needs to demonstrate a very bold use of the expected free cash flow, in the form of both increased dividend and share repurchases, that will attract new investor interest and accelerate the EPS growth. However, this will limit the new product development options, considering the potentially competing development requirements of the 737MAX, the 787-10, and the 777X. We believe current BCA leadership wants to do both the 777X and the 787-10, and believes that there is significant pent-up order demand for both new aircraft, but we believe the focus on share repurchases and/or the dividend, reiterated at the 8/28/12 reception, could push some development effort to the right.
Why Aircraft Are Late: Boeing 747-8, 787, Airbus A380, A400M, A350, Mitsubishi MRJ, Comac ARJ-21, Sukhoi Superjet and probably Comac C919, Bombardier CSeries and Irkut MS-21–all late. It’s the new normal. Ernie Arvai at AirInsight takes a look at why.
Catching Boeing: Airbus may well have trailed Boeing through the Farnborough Air Show in terms of orders, but it may also be on the way toward catching up. The big PAL order for 54 aircraft was announced this week. A 100-airplane order out of China is due to be announced shortly. Another 100 airplane order from AirAsia appears to be pending. Year-to-date, Boeing has 701 net orders and Airbus has 270 net orders. These three orders still leaves Airbus well short of Boeing, and Boeing has more 737 MAX commitments to convert this year. We expect Boeing to finish the year in first place. It will be interesting to see how close Airbus can come.
NEO firm order wrap: Aviation Week has this detailed recap of NEO firm orders. We expect some of the A320neos to be converted to A321neos as time goes on, just as we expect 737-8 MAX orders to be swapped with 737-9 MAX positions.
In today’s computer world and fancy 3D programs, it turns out there is still a place for airframe mock-ups to cross-check computer programming and to actually be sure the human can reach the nooks and crannies in an airplane.
Bombardier and Airbus are using mock-ups for the CSeries and A350. AirInsight has this report.
Bombardier’s iron bird this week began virtual flights. This is a key process to test the systems before the first airplane rolls out and it is a key way BBD hopes to avoid delaying EIS. Most people believe the first flight will be 3-6 months late (we concur) and BBD itself has been telegraphing the prospect of a 3-5 month delay, though so far it is sticking to its official schedule that first flight will be in late December.
- Separately, Boeing activated the 787 surge line in Everett. This is key to achieving a production rate of 10 per month by the end of next year. It also serves as mitigation of the risk of Charleston.
Crummy DOT Data: We’ve previously written that we, and AirInsight, are skeptical about airline data filed with the US Department of Transportation. AirInsight doesn’t rely on it at all when doing aircraft economic analysis. We are openly skeptical of Boeing’s reliance on DOT 41 data when comparing maintenance costs of the 737 vs the Airbus A320.
Aviation Week has this item that illustrates precisely why we think DOT 41 data has to be viewed with great skepticism.
Airbus Mobile and Washington State: This Op-Ed in, of all places, The Seattle Times, explains how Washington State will benefit from Airbus’ new Mobile (AL) plant. Says what we’ve been saying for a long time. Misses the fact that WA is the No 1 or No 2 supplier to Airbus in the US by company count and No. 6 by dollar volume.
787 Deliveries: 17 and counting, with Air India, Qatar and others to deliver shortly. We are feeling more and more confident Boeing will hit its target of 40 deliveries this year, with just four months and a few days left.
PAL’s Big Airbus Order: This has been written up a lot, so it’s no surprise. What caught our eye was Aviation Week’s report that says Airbus found A321 delivery slots next year. Who deferred or who cancelled to find these slots in a production line that’s supposed to be sold out to mid-to-late this decade?
A350 Supply Chain Challenge: Aviation Week has this article about changes to the A350 supply chain and change incorporation.