Wednesday, July 27, 2016

Boeing Considers Ending Production of 747: Plane maker plans to make just six of the aircraft a year starting in September

The Wall Street Journal
Updated July 27, 2016 3:27 p.m. ET

The world’s most recognizable airplane is coming in for a landing.

Boeing Co. said in a regulatory filing Wednesday that it might stop production of the 747, ending nearly a half-century of building the plane that became the aircraft of choice for the U.S. president and other heads of state.

The prospect of ending 747 production after years of weak sales would close a chapter of Boeing’s history that began when the humped jetliner won its first orders from Pan American World Airways five decades ago.

Boeing has delivered more than 1,500 of the jets since 1970, when the company introduced the plane.

Aviation historians credit the plane with making global air travel more affordable for most people. The huge number of seats, sometimes nearly 600 on some airlines, spread the costs across the large group of paying passengers.

The 747 has weathered industry downturns over the decades, including when Boeing nearly went out of business in the 1970s. The company’s last 747 production boom occurred in the 1990s. Peak output came early in the program, when the company delivered 92 of the jets in 1970. But the jet has been a constant for the plane maker and was a hallmark of the U.S.’s Cold War industrial prowess.

Boeing now plans to make just six of the planes a year, starting in September as it addresses a current backlog for 21 of the jets. Two are expected to serve the U.S. president beginning in 2023 after years of modifications, and will be known as Air Force One when the president is aboard, but haven’t been formally ordered yet by the Defense Department. A pair of older 747s in their distinctive white, blue and polished aluminum have been flying the U.S. presidents since 1990.

Demand has weakened for 747 air-cargo freighters and passenger planes. Freighter orders have experienced a sharp slowdown since the 2008 global financial crisis, with more goods traveling by sea or in the bellies of passenger aircraft. In its passenger-carrying form, the 747 has faltered as airlines turn to smaller twin-engine jets. Rival Airbus Group SE is slashing production of its own even-larger double-deck jumbo in 2018.

New jets still roll off Boeing’s assembly line in Everett, Wash., as the company’s 747-8, and are expected to fly for decades. But last week, Boeing announced a $1.2 billion charge on the program and curtailed plans to raise 747 output back to one jet a month in 2019.

It has been a bumpy first year on the job for Boeing’s new chief executive, Dennis Muilenburg. Shares have fallen 4.6% since he took over the top spot in July 2015. A decision about the jumbo jet’s future will likely fall to Mr. Muilenburg, who was just 2 years old when Boeing started taking orders for the plane.

Mr. Muilenburg said the charge reduces Boeing’s future financial risks related to the 747, which hasn’t contributed positively to the company’s earnings for years. Boeing says 2019 could bring a wave of retirements of older jets that could be replaced by factory-fresh 747s.

Yet, the company cautioned in its regulatory filing: “If we are unable to obtain sufficient is reasonably possible that we could decide to end production of the 747.”

Boeing on Wednesday posted its first quarterly loss in nearly seven years, from a total of $3 billion of charges, including for the 747.

The other charges stem from delays to Boeing’s advanced 787 Dreamliner and the company’s new aerial-refueling tanker. They were largely expected, but underscore the challenges still facing crucial Boeing projects.

The Dreamliner program has been the most costly for Boeing over the years, with the company forced to spend tens of billions of dollars more than first expected. The latest bill for production totaled $27.7 billion.

The company said it would begin to make money on each 787 delivery by the end of the year but only after having built about 500 of the aircraft since 2011, or roughly 40% of its orders.

Boeing posted a loss of $234 million, or 37 cents a share, compared with a profit of $1.1 billion, or $1.59 a share, a year earlier. Revenue rose 1% to $24.8 billion.

However some metrics managed to beat analyst expectations. Adjusted core earnings loss, which excludes certain pension expenses and is closely watched by investors, came in better than expected. Shares in Boeing rose $1.11 to $135.96 on the New York Stock Exchange.

The company revised its annual earnings-per-share guidance to a range of $6.40 to $6.60 a share, from a range of $8.45 to $8.65 a share. It left its closely watched cash-flow guidance unchanged at roughly $10 billion.

As older development programs continue to weigh on its finances, Boeing’s aerial tanker, its biggest defense program, pushed more than 40% past its original budget.

Boeing added $243 million to its development bill in the first quarter in an effort to keep the program on schedule, only to add $573 million more from new delays with its most recent charge. The company said in May that first deliveries to the U.S. Air Force were stalled by five months because of design and production issues.

Boeing last week completed early aerial trials refueling aircraft from the Air Force, Navy and Marines, clearing the way for a purchase decision in August by the Defense Department. The company still faces a battery of tests to complete the tanker over the next year.

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