Boeing sees strong jetliner demand; focus on cost-cutting


Boeing is still seeing strong demand for civilian aircraft and pressure to increase its production rates, despite concerns about slowing growth in China and several years of record aircraft orders.

“We’re not seeing a slowdown in demand,” Chief Financial Officer Greg Smith said at an investor conference on Wednesday hosted by investment bank Jefferies.

Airlines from many countries are buying significant numbers of planes to replace old aircraft, providing “more confidence in this cycle” he added, addressing concerns by some investors that the cycle has peaked.

Cutting production costs on the 787 Dreamliner is a top priority at the Chicago-based company. The 787, which costs about $260 million at list prices, is Boeing’s most recent commercial jet. It is loaded with high-tech features, but continues to lose money.
“There’s no question getting 787 unit cost down, unit over unit, is a big if not the biggest focus area we have at the company,” Smith said.

Boeing has not met its own expectations in cutting 787 costs and has roughly 1,100 cost-cutting projects it is evaluating with a special team, he said, noting there is “a lot of work do to” and time required to wring savings out of the production system.
“That’s what we have an entire team focused on right now,” Smith said, “looking at all aspects of the build and in the supply chain.”

Titanium is among the 787 costs Boeing is evaluating, given the high cost of the material.

Smith said stable 787 production at a rate of 10 per month has helped Boeing find cost savings. Demand for the 787 variant is being affected by the long wait time and faster production would help, he added. “If we had the opportunity to bring rate up faster, we would.”

Boeing lost about $23 million on every 787 it delivered in the second quarter, but expects the 787 to turn cash-flow positive by the end of the year. The program has run up about $30 billion in production, tooling and one-time costs building the plane, which will begin to be paid off when the 787 becomes profitable, expected in 2016.

Smith also predicted that cash flow would continue to rise as the company reduces losses on the 787, but did not offer a new forecast. Boeing has said it expects operating cash flow of more than $9 billion in 2015.