Boeing Stock Rises as Bigger 787 Prepares for Takeoff
As Boeing Co. (BA) prepares to fly the first of its bigger 787 Dreamliners, Chief Executive Officer Jim McNerney is plotting production of the marquee jet at a faster pace as he gains confidence it has overcome a troubled past.
A smooth takeoff for the 787-9, which may have its first test flight as early as today, should help Chicago-based Boeing speed the Dreamliner’s manufacturing tempo to profit from a backlog of 853 orders worth $146.5 billion, according to Bloomberg Industries estimates.
The latest Dreamliner features tighter design and manufacturing controls that the world’s largest aerospace company is using to develop the 737 Max and 777x. While Boeing is working to produce 10 Dreamliners a month by year’s end, the most ever for a twin-aisle jet, McNerney is studying boosting output again when the 787-10 makes its mid-decade debut.
“We have a marketplace that wants us to go higher,” McNerney told a Morgan Stanley (MS) Industrials and Autos Conference yesterday, while saying Boeing won’t do so until assuring that production and the supply chain are stable at the record pace. “The two words ‘787’ and ‘stable’ haven’t always been used in the same sentence.”
Accelerating Dreamliner production and avoiding setbacks like the battery fires that grounded the fleet this year are critical if Boeing is to keep revenue growing as it redesigns the best-selling 737 and 777 jets, said George Ferguson, senior analyst with Bloomberg Industries in Skillman, New Jersey.
“Without getting the 787 program up and moving and delivering, they’re going to be in a situation shortly where the 777 will be the only wide-body program that’s delivering any volume,” Ferguson said in a phone interview. “The 787 is the hope of the future for this company when it comes to the wide-body business.”
Boeing rose 3.9 percent yesterday to $115.67 -- the highest level in at least 33 years -- after Peter Arment, an aerospace analyst with Sterne, Agee & Leach Inc., raised his price target $44 to $164 per share.
Arment, who is based in Birmingham, Alabama, rates Boeing buy and predicts the company could generate about $40 billion in free cash flow between 2014 and 2017. Aircraft deliveries may increase 24 percent to about 800 annually by mid-decade.
“Boeing’s got it teed up,” Gary Bradshaw, a fund manager with Hodges Capital Management in Dallas, said in a phone interview. “If they can execute, it should be a very good stock for a number of years.”
Boeing is aware of the stakes and created a “disciplined management model” to guide development of the latest Dreamliner while it was still working to resolve design issues and supply-chain snarls that left the first 787-8 and a redesigned 747 years behind schedule, said Scott Fancher, Boeing’s vice president and general manager of airplane development.
“It’s a complex challenge to define the right combination of design and build improvements for a derivative while you’re developing the parent airplane,” Fancher said last month in an interview in his Everett, Washington, office. “Despite that complexity, we loaded the -9 into the factory the very day we scheduled over 2 1/2 years ago.”
The initial flight of the new Dreamliner will be from Paine Field, adjacent to Boeing’s factory in Everett, where the first 787-9 was assembled.
The new jet is 20 feet (6 meters) longer than the 787-8 and seats 40 more people, which should boost its operating economics for airlines, Richard Aboulafia, vice president with Teal Group, a consultant based in Fairfax, Virginia, said in a phone interview. The first of two planned Dreamliner derivatives, the -9 accounts for 45 percent of orders for Boeing’s largest wide-body program.
Boeing’s newest airplane has a list price of $249.5 million and seats 250 to 290 passengers. It also has a longer range than the first Dreamliner: 8,000 to 8,500 nautical miles (14,800 to 15,750 kilometers) compared with the 787-8’s range of 7,650 to 8,200 miles.
The 787-9 also features new technology to reduce airframe drag and fuel burn, according to Fancher, who declined to discuss specifics.
Boeing’s system may involve suction that circulates air through the leading edges or surface of the plane’s horizontal and vertical stabilizers to reduce turbulent air flow, Robert Mann, an aerospace consultant, said in a phone interview.
“By doing so, you reduce drag while maintaining the desired lift,” said Mann, who heads R.W. Mann & Co., based in Port Washington, New York. Increasing the efficiency of the plane’s surface could boost its fuel savings “a couple percent,” he added.
Doug Alder, a Boeing spokesman, declined to comment on fuel savings for the 787-9.
Boeing’s oversight of its suppliers is much improved since the first 787 was delivered 3 1/2 years late in 2011 after the company grappled with fire, parts shortages and integrating designs completed by suppliers rather than its engineers, said Aboulafia. He estimates Boeing’s tab to develop the 787-8 was “in the $20 billion range when all the smoke cleared.”
“Today we work shoulder to shoulder with all our partners,” Fancher said. “Pulling the partners into the design team, not holding them at arm’s length,” is a key lesson learned from the 787-8, he said.
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