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BOEING – GOOD JUST GOT EVEN BETTER By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

boeing28 Jan 15. With core EPS rising a heady 22% and reaching the record level of $8.60 per share on a new  record amount of revenue standing at $90.8 billion FY14 results for Boeing may be regarded as the best ever in the very long and sometimes turbulent 99 year history of this very fine company.

Not surprisingly Boeing shares opened substantially higher when the market opened and at the time of writing stood at $138.26, up $7.23 on the day so far and which represents a rise of 5.52% on the day.

While there remains a degree more uncertainty in the geo-political world and in the outlook for some economies the need for more commercial airplanes, the need to replace old and far less efficient planes reasons why I and others continue to remain very positive about the outlook for the commercial aerospace industry. Boeing has certainly done very well over the past year and to not only surprise markets on the upside but through the past year rid itself of a quite a few problems that had been dragging on is really good news.

That is not to suggest that no remaining issues of concern such as the slowdown of western market spending on defense but it is to say that over the past year confidence in the company to deliver really has taken a giant leap forward. It has done so with every justification too and one only has to look at the Boeing forward forecast expectations and know of its past record of forecasting success in this respect to know that they are right – markets over the next twenty years will require in the region of 36,770 new regional, single-aisle, small, medium and large wide-body jets by 2033.

The 787 ‘Dreamliner’ programme is now bedding down well with 230 planes already delivered to 28 customers. Little over a year away from the first flight of the 737 MAX for which the company has already secured orders for 2,600 planes since the programme was launched all eyes are now on the other new Boeing aircraft development, the 777X which is due to make its maiden flight in 2019 with production starting in 2017 with the first aircraft customer delivery targeted for 2020. Yes, sales of the 747-8 are slower than the company would like but with plenty more planes on order left to build this is not the huge problem that some try to make out.

Boeing Commercial completed the year having booked a total of 1,432 net orders of which 432 were in the final quarter of the year. The commercial airplane order backlog remains extremely strong standing at 5,800 planes valued by the company at a record $440 billion. Not surprisingly, Defense, Space and Security did not come out quite as well with revenues down by 7% and operating earnings down 3%. At the heart of this was lower deliveries of the F-15 military fast jet and of the C-17 Heavylift, a programme that is very sadly now running towards its end. But for all that one notes that the company still managed to raise margins in defense, took on some decent new orders and I would even go so far as to suggest that the outlook for defense today may not be quite so bad as has looked in the more recent past.

For the current year Boeing has raised core earnings guidance to within a range of $8.20 to $8.40 per share on revenue slightly ahead within a range of $94.5bn to $96.5bn. The total company order backlog stood at $502bn at the end 2014, up a total $61bn on a year earlier and reflecting a total $152 billion of net orders received during the year.

A truly remarkable year for Boeing ended in triumph with new all-round highs being reached in the dominant commercial aircraft business. A good year that 2014 looked to be just got even better when the increases in operating cash flow and cash and marketable securities and broadly similar level of consolidated debt is taken into account. During the year Boeing repurchased 7.8 million shares at a cost of $1bn and paid out $0.5bn in dividends. Given the strong cash generation and outlook the company has once again raised share repurchase authorisation to a total of $12 billion.

For the year ahead one may anticipate cost and other benefits to start flowing through from the 787 as the production programme steadily matures in terms of efficiency. Conceptually the 787 Dreamliner programme remains hugely important and with a backlog of 850 plus planes there is no shortage of orders.

Boeing is of course an international company with customers for its commercial aircraft in every part of the world. The same applies in Boeing defense and space and a point worth making is how Boeing has chosen to invest in its ‘home’ markets. Britain is no exception and while Boeing commercial aircraft are everywhere to be seen it is investing to support military products in service with the Royal Air Force and Army that stand out.

In Britain today Boeing employ a workforce close to 2,000 people and they spend in the order of £1.6bn through UK suppliers. The company is independently assessed to have supported 55,700 jobs in the UK of which 9,200 jobs were in the supply chain in 2013 and I don’t doubt at all that this figure will have risen again in 2014. Boeing has also supported a wide range of programmes in support of research and development and training. One such programme that Boeing has been instrumental in supporting has been the enormously successful ‘Schools Build a Plane’ challenge project which is sponsored by the Royal Aeronautical Society.

Rolls-Royce which supplies approximately 25% of engines for the 787 programme is another example. The company also support no less than seven strategic University partners here in the UK investing more than £15 million per annum in research.

hwheeldon@wheeldonstrategic.com

chwheeldon@yahoo.co.uk

Tel: 07710 779785

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