Boeing posted a company-wide fourth-quarter loss of $56 million, resulting mainly from its two-month-long machinists strike and a charge related to the delay of the 747-8 program, the company announced on Wednesday morning. Revenues at Boeing Commercial Airplanes (BCA) dropped 15 percent, to $28.3 billion, as the division delivered 105 fewer airplanes than expected due to the strike. BCA operating earnings dropped 67 percent, to $1.2 billion, and margins fell from 10.7 percent to 4.2 percent. Including the effects of its inability to collect on advance payments for the 787, Boeing estimates that the strike reduced full-year earnings at BCA by $1.8 billion.
“A small percentage of underperforming programs can have a big impact to overall results, and we are addressing that reality in our plans for 2009,” said Boeing CEO James McNerney. “The work statement on the [the 747-8] has expanded since the start of the program to meet performance commitments to our customers and to recover from our original underestimation of the scope of engineering work that needed to be done on this airplane. The resulting design changes, which have been substantial, coupled with limited availability of engineering resources to do the work drove the schedule change we announced in November. Since then, a full assessment of the supply chain impact of these and other additional design changes along with increased pension costs resulted in the reach-forward loss we recognized in the fourth quarter.”
Although he expressed clear disappointment with the delays and resulting financial impact, McNerney called the 747-8 “a very competitive airplane with a strong future.”
The Boeing CEO also reiterated plans to fly the 787 for the first time during this year’s second quarter, and said that the company continues to see progress in its work with suppliers to improve the condition of assemblies arriving in Everett, Wash. Plans still call for reaching a production rate of 10 airplanes per month in 2012, “and [Boeing] will evaluate possibilities to increase and/or accelerate that rate,” he added.
Although McNerney noted that Boeing booked new orders for 93 Boeing 787s, “we do expect some puts and takes on 787 orders in 2009, with one customer’s orders for fifteen 787s late in the next decade coming off the books this week.”
Calling performance at BCA “clearly unsatisfactory,” McNerney said he and BCA president and CEO Scott Carson have begun the process of reintroducing “rigorous functional discipline with clear lines of sight and accountability, and tighter integration of program, business unit and corporate decision making.
“We both believe it’s time to end the era where development programs were stood up to operate as islands of their own,” he said. Although he said that model served its purpose in promoting entrepreneurship and innovation, recent experience has shown that it has done so at the expense of “execution and performance.”
Notwithstanding an ongoing credit crisis that promises to make financing airplanes more difficult this year, BCA plans to deliver between 480 and 485 airplanes, in effect, maintaining last year’s production rates. To help meet that goal, the company projects that its Boeing Capital division will need to finance some $1 billion worth of deliveries this year. Last year Boeing absorbed six order cancellations and 110 deferrals, the deferrals accounting for roughly 3 percent of its Commercial Airplanes backlog. Although McNerney said he expects an increase in those numbers this year, he said “significant” overbooking and information gleaned during “constant” discussions with airlines points to a modest enough deferral rate to maintain production rates at last year’s levels. “The size, diversity and quality of our backlog provides greater flexibility than we’ve had in the past to accommodate our customers,” said McNerney.