The future appears bright for Boeing Co., provided it resolves production problems affecting two cutting-edge aircraft, analysts say.
The aerospace manufacturer tallied record sales of $61.53 billion last year, up 15 percent from 2005, as the company’s commercial aviation and defense businesses posted strong results.
Boeing expects 2007 and 2008 to be even better. Raising its forecasts Wednesday, the Chicago-based company predicts sales will top $64.5 billion this year and $71 billion next year as major U.S. airlines replenish aging fleets and the U.S. Air Force replaces its antiquated tankers.
“This is the first simultaneous civil aviation and military upturn in decades,” said Richard Aboulafia, aerospace analyst with Teal Group Corp., a Fairfax, Va.-based market research firm. “Boeing is the only U.S. [firm] primed to take advantage of both markets.”
But despite its robust 2006 revenues, Boeing’s net income slipped 14 percent, to $2.22 billion, or $2.85 per share. The culprits: increased spending to keep the new 787 Dreamliner on track, and two special charges, totaling $770 million, to cover rising costs and delays for a new airborne surveillance system designed to be flown in Boeing 737 aircraft.
Of the two programs under the microscope, the 787 is of greater concern to investors, especially given the foul-ups that have plagued Boeing rival Airbus SAS in its development of the A380 superjumbo jet.
Production glitches have cropped up at four manufacturers, three in Japan and one in Italy, that are creating the carbon-fiber frame for the 787, Boeing executives said Wednesday. Boeing has sent in a corps of engineers to help its suppliers cope with the difficulties, Chief Executive Jim McNerney told analysts on a conference call.
“We’re not totally out of the woods, but the progress is good,” he said.
The aerospace giant expects the jet to begin rolling off its production lines by May 2008, as previously announced, McNerney said. Boeing expects to deliver about 35 of the new aircraft in 2008 and about 75 the following year. The company has won 452 orders for the 787 since it was unveiled in 2004.
Boeing boosted research and development spending by more than $1 billion, or 47 percent, to $3.26 billion during 2006, in an effort to respond quickly to any technical difficulties that arise in the assembly in the 787, a typical hazard for any new aircraft.
The company predicts it will spend between $3.2 billion and $3.4 billion on research and development in 2007, then that figure will fall to $2.8 billion to $3 billion the following year.
That forecast heartened investors and analysts.
“The assurances they gave today, including the guidance that R&D costs will go down in 2008, are all indications they feel they are on schedule,” said Paul Nisbet, aerospace analyst with JSA Research Inc., based in Newport, R.I.
However, Boeing is struggling to get a handle on production and technical difficulties arising in a new version of its old AWACS radar systems being developed to be flown in the 737. The program is also known as Wedgetail in Australia and Peace Eagle in Turkey, two early customers.
Boeing faces several challenges: It is using an all-new radar system, which must be crammed into the 737, which is much smaller than the previous aircraft used for the surveillance systems: the 767 and 707.
The miniaturized equipment “all worked until they got it in the airplane,” Nisbet said. The components “were interfering with each other, apparently.”
For the second time during 2006, Boeing took a special charge related to the program during the fourth quarter of $274 million. It pushed back delivery of the aircraft by six months, to 2009. That’s in addition to the two-year delay Boeing had announced for the program earlier in 2006.
“We tried hard all year to get to the bottom of it,” said McNerney. “We think we’re there, and we’re working on our partners on the program.”
That Boeing continues to have problems with the program was evident to analysts last month, when program partner Northrop Grumman Corp. took a $61 million charge related to the radar system it is developing for the 737.
“I was not surprised, because Northrop took yet another charge,” said Cai von Rumohr, managing director for institutional research at Cowen and Co. “Northrop will start testing radar early next year, so we’ll see.”
But the costs to Boeing could extend far beyond the special charges it took in 2006, Nisbet noted. The aerospace manufacturer has garnered only about a dozen orders for the aircraft, worth about $3 billion.
“They’re sinking additional sales in the real world,” Nisbet said. “Given the war on terrorism, it’s an unfortunate time to be having this [delay].”
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jjohnsson@tribune.com
