Credit Suisse and UBS issued notes on Boeing today. Here are excerpts. Key points: production ramp up on the 787 may go faster than expected; Boeing continues to consider a rate higher than 10.mo for the 787; 2013 orders expected to be around 1:1 book-to-bill.
Softer 2013 Bookings May be [coming]. We agree with [Boeing] that cancellation concern is likely overdone. However, we think orders will slow…most airlines are already in the book, and we will not see a new product soon enough to spur activity. Although softer bookings are better than cancellations, and may not pressure production or earnings growth, orders have been the key historical share driver. So, although BA has not backed off a ‘13 book:bill target of 1.0x, we are less convinced, unless a number of ‘12 MAX commitments defer to ‘13.
[Boeing] noted that deferral and cancellation rates continue to be at or near historical lows. The leading indicator of trouble are conversations between airlines and Ray Conner (CEO of BCA) and these have not elevated beyond the normal level. Also Boeing commented that it is not seeing a slowdown in demand, if anything it is seeing an increase in demand for accelerated deliveries.
Regarding 2013 book:bill, we believe the most recent formal Boeing projection was made by Jim Albaugh at May’s investor day, targeting 1.0x or slightly better. Since Ray Conner recently assumed control of BCA, he has not changed the target, saying at an investor conference just last week that he expects 2013 bookings to remain near 1.0x.
However, we believe this target is highly sensitive to the timing of MAX commitment conversions, the health of the cargo market as it relates to 747, and 777 demand in the context of timing of the A350 schedule for those carriers interested in both.
One factor that could augment 2013 orders is a timely introduction of a 787-10 or 777X, although we think the former is more likely. Boeing expects more clarity on its widebody plan later in 2012 or early in 2013.
787 Rate – We estimate that most of Boeing’s suppliers are already at 5 shipsets per month, which should enable Boeing to achieve that rate sometime in Q4. Following this we expect Boeing to begin loading at 7 per month and then 10 per month in 6-month intervals.
Regarding 2013 production, while rate plans would indicate 6-months at 5 per month and 6-months at 7 per month, for a total of 72 aircraft produced, we note that a multi-week lag (currently 6-8 weeks but Boeing is attempting to get this down to 4 weeks) in delivery timing means that deliveries of newly produced aircraft will be somewhat lower.
However, some EMC (Everett Modification Center) aircraft will supplement deliveries, which should offset the production-to-delivery lag. Consequently, we now see 74 787s delivering in 2013, give or take, down slightly from our previous estimate of 78 deliveries. Boeing is continuing to evaluate the potential for the rate to exceed 10 per month, with investment as the key decision factor. The company expects to make a decision on a higher rate at the point at which it reaches 10 per month, scheduled for end of 2013.
Dreamlifter indicating BA could go to 5/mo earlier than expected We believe the large structural suppliers are now in line to ahead of Boeing’s final assembly rate at 3.5/month. We believe our Dreamlifter tracker indicates Boeing’s final assembly rate could move up to 5/month earlier than expected.