Highlights about Boeing’s strategy for its Boeing Commercial Airplanes (BCA) division from a presentation by Boeing [BA] Chairman and CEO Jim McNerney at an investor conference on 22-May-2013. Accompanying McNerney’s core points are my analysis of BCA’s strategy and other comments.
- “Profitably deliver record backlog”. Boeing’s commercial airplanes division has nearly a $400 billion backlog corresponding to 4.5 times the estimated sales in 2013. This robust prospect of future revenue allows Boeing to efficiently plan production, fine-tune production rates, and endure economic variations around the world.
- “Expand market leadership in twin-aisle market”. The 777 program has surpassed Boeing’s expectations when launched. As of February 2013, 1,079 777s had been produced with a backlog of 356. With a list price of $315 million for the 777-300ER and an assumed true sales price of $190 million, the airplane takes less than $150 million to build. Clearly the 777-300ER has become Boeing’s cash cow and continues to generate cash at extraordinary rates. The 787 program has been plagued with production and product problems. Yet, the 787-800 model has had 535 orders and the 787-900 has had 355 models.
- “Sustain healthy single-aisle market share position”. Boeing presently functions in a duopoly with Airbus. The duopoly in the single-aisle market is under threat from Bombardier, COMAC, and others. Airbus was the first to launch its next-generation single aisle aircraft the A320neo (new engine option) and booked 20% more orders in comparison to the to Boeing’s 737-MAX, which was released late. Boeing and Airbus are re-engining their respective aircrafts making an allowance for controlled R&D spending and still allowing for significant cash flow generation.
- “Drive productivity improvements across all programs”. Boeing expects to increase increasing the 737 production from 38 to 42 per month by mid-2014. The 777 production rate increased from seven to eight per month. The higher production is expected to diminish near-term improvement in operating margins thanks to the progam’s delays and cost overruns. Simultaneously, Boeing has focused on innovation and its key relationships with strategic suppliers and customers to increase return on invested capital in the future.