As demand soars, Boeing contemplates new plane
A replacement for less fuel-efficient, bigger planes that lets airlines launch new midrange routes.
DALLAS — Boeing, flying high on strong demand for airliners and military planes, faces a difficult decision over whether to develop a new plane to fill in a gap in its lineup.
Boeing CEO Dennis Muilenburg says the plane could replace less fuel-efficient bigger planes and let airlines launch new midrange routes. It would be bigger than Boeing’s workhorse 737 but smaller than the 787, the company’s newest airliner, which first landed in airline fleets in 2011.
Muilenburg said there is demand for the plane, but Boeing needs to make sure of “the business case” for the jet before making a multi-billion-dollar commitment to build it.
On another subject, Muilenburg said Boeing’s short-term prospects in China are uncertain, partly because of the U.S. trade dispute with China. Boeing remains bullish on the long-term potential for the Chinese market, he said.
The comments came as Boeing reported that its 2018 revenue topped $100 billion – a first for the century-old aircraft maker. The company posted fourth-quarter earnings and sales above Wall Street expectations and offered an upbeat forecast for 2019.
Boeing shares soared 6.3% higher, closing up $22.86 at $387.77.
Boeing executives said they expect to decide this year whether a new, mid-sized airliner would make business sense, then conduct another round of discussions with airline customers before making a final launch decision next year. Airlines would get the plane starting around 2025.
“It’s clear that there is a market need, but we are working through the details of the business case,” the CEO told analysts and reporters.
Cost is an obvious concern; analysts say the new plane could top $15 billion to develop. It could give Boeing an answer if Airbus pushes ahead with a longer version of its A321 jetliner, but it could also undercut sales of Boeing’s own 787, called the Dreamliner.
Richard Aboulafia, an aviation analyst with Teal Group, expects Boeing to build the plane – being called the 797 – after difficult deliberations.
“They need the 797 to have twin-aisle capabilities with single-aisle economics, which is a very hard proposition,” Aboulafia said. If the plane competes primarily with bigger, twin-aisle planes, he said, it could cannibalize sales from Boeing’s own 787.
Jonathan Root, an analyst for Moody’s Investors Service, said Boeing’s financial performance and deep backlog of more than 5,800 airliners on order will generate cash needed to develop the plane. Market expectations for a launch of the program, he said, “are high.”
Meanwhile, US and Chinese negotiators started two days of high-level talks Jan. 30 aimed at settling a six-month trade war that has weakened both sides, shaken financial markets and clouded the outlook for the global economy.
The Trump administration has imposed tariffs on $250 billion in Chinese imports in retaliation for China’s alleged theft and forced sharing of technology from American companies.
Muilenburg said the trade tension, along with China’s 5-year economic planning cycle, may affect the timing of orders from China and create uncertainty for Boeing’s business there over the next quarter or two, but won’t dampen the strong long-term outlook. He said both countries have too much to lose by continuing to fight.
“China needs the airplanes … to meet their passenger growth and cargo-growth needs, and here in the U.S. our aerospace business is a tremendous US jobs generator,” he said.
Against the tide or rising US trade wars, Boeing delivered 238 commercial airplanes in the fourth quarter and 806 in all of 2018, up 6% from 2017. It expects more of the same in 2019, projecting deliveries between 895 and 905.
Production of the 737 has been hindered by shortages of key parts. Boeing executives said they had sent representatives to engine maker CFM International – not an unusual move, they said – to help restore the supply chain.
Boeing Co.’s quarterly net income was $3.42 billion, and it said “core” profit was $5.48 per share, easily topping the $4.52 per share that industry analysts were looking for, according to a poll by Zacks Investment Research.
The Chicago company’s revenue rose 14 per cent to $28.34 billion, breezing past analysts’ forecast of $26.65 billion.
Boeing expects full-year 2019 earnings between $19.90 and $20.10 per share and revenue of $109.5 billion to $111.5 billion. Both would beat analysts’ expectations.