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Boeing plans to cut 777 production in 2017

Outlook for 2016 disappoints despite Q4 performance

By Dominic Gates, The Seattle Times
Published: January 28, 2016, 4:48pm

CHICAGO — Boeing’s fourth-quarter financial performance beat analysts’ estimates, but management on Wednesday forecast reduced airplane deliveries for the year ahead and its profit and cash flow guidance for 2016 came in well below Wall Street’s expectations.

And during a teleconference call, Boeing chief executive Dennis Muilenburg also confirmed a Seattle Times report Tuesday night of another production rate cut: The 777 program will go down in 2017 from 100 jets per year to 84 per year (7 jets per month).

The company did not book an accounting charge for the 777 rate cut.

Separately, Muilenburg said Boeing plans in 2019 to further accelerate production of the single-aisle 737, giving the Renton assembly plant a better employment outlook than the widebody jet plant in Everett.

Production of the 737 is now at 42 planes per month and Boeing had earlier announced increases to 47 jets per month in 2017 and to 52 jets per month in 2018.

Muilenburg said demand supports a further increase and production will go to 57 jets per month in 2019.

Boeing spokesman Doug Alder said that as a result of the 777 rate cut, “we expect some impact on employment and will do our best to mitigate that by placing employees in other jobs across Boeing.”

“We are still studying how many roles may be impacted,” Alder added.

The rate cut is necessary because Boeing currently doesn’t have enough sales to fill all the 777 delivery slots between now and when production of the new 777X kicks into high gear after the turn of the decade.

Scott Hamilton, an Issaquah-based aviation analyst with Leeham.net, published an analysis Tuesday estimating that “Boeing needs to sell more than 200 777 Classics, all with delivery dates through 2021, to bridge the gap to full production of the 777X.”

Last year, Boeing sold just 38 of the present model 777s.

Most financial analysts believe the size of that 777 sales gap means the production rate will have to come down lower than 7 per month, with the majority predicting that Boeing will eventually have to go down to 6 jets per month.

As for the sequence of three 737 rate increases ahead, Alder said that “generally speaking, increased rates require some level of increased employment.”

“The planned rates and market demand mean that we see consistent levels of work for Boeing employees building the 737 in Renton for the foreseeable future,” he added.

Boeing said it expects to deliver between 740 and 745 jets this year. That’s about 20 airplanes fewer than the 762 delivered in 2015.

Following the financial guidance and rate cut news, Boeing shares were down more than 8 percent in early trading.

Adding to the morning’s woes, because of technical difficulties with the live webcast of its teleconference call, Boeing halted the discussion before analysts or journalists had a chance to ask any questions.

That teleconference is set to resume later in the morning.

For the period ended Dec. 31, Boeing earned $1.03 billion, or $1.51 per share. A year earlier the Chicago company earned $1.47 billion, or $2.02 per share.

Last week, Boeing said that its fourth-quarter would include an $885 million pretax charge related to cutting production of its 747-8 cargo plane due to a slowdown in its airfreight business.

Its adjusted profit was $1.60 per share.

The results surpassed Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $1.37 per share.

Revenue declined to $23.57 billion from $24.47 billion. This managed to top the expectations of five analysts surveyed by Zacks, who were looking for $23.4 billion in revenue.

Looking ahead, Boeing anticipates its 2016 adjusted profit in a range of $8.15 to $8.35 per share on revenue between $93 billion and $95 billion. Analysts surveyed by FactSet are calling for a profit of $9.41 per share on revenue of $97.26 billion.

The Associated Press contributed to this report.

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