The Machinists union strike at Boeing in September trimmed $1.5 billion from the company's third-quarter sales and chopped 30 planes from...
The Machinists union strike at Boeing in September trimmed $1.5 billion from the company’s third-quarter sales and chopped 30 planes from the 2005 delivery outlook.
Yet Jim McNerney is in no hurry to recover the lost ground.
Boeing’s new chief executive has bigger worries, he revealed Wednesday.
During the next three years, Boeing must radically increase output of existing commercial-jet models; begin churning out 787 Dreamliners, and develop cargo and passenger versions of a 747 Advanced — all while increasing reliance on a vast network of global suppliers.
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McNerney is intent on pulling that off without the delays and red ink that plagued the company’s last major production uptick, in 1997 and 1998.
“We are taking it very seriously, very systematically,” McNerney said Wednesday during a conference call to discuss Boeing’s third-quarter results.
“We’re not out there trying to chase 21 or 30 airplanes over the next year-and-a-half. We really are looking at how we can ramp up and take full advantage of this robust demand that we’re seeing in the marketplace.”
Boeing now expects to deliver 290 jets in 2005, rather than the 320 jets projected before the strike, and 395 jets in 2006.
The quarterly numbers came in below expectations.
Total sales fell to $12.6 billion in the period, down 4 percent from $13.2 billion a year ago, due largely to the strike and a dip in defense sales.
Profit more than doubled, to $1.0billion from $456 million in the third quarter of 2004, but the numbers were skewed by several one-time items.
Boeing received a $537 million tax refund during the quarter, thanks to an ongoing audit of returns filed in the 1980s and 1990s, which found the company overpaid in some years.
It also received $700 million when it completed the sale of Rocketdyne to United Technologies.
Wall Street was not happy with the results reported Wednesday. Boeing shares fell $1.87 to $65.10.
Aside from the numbers, the earnings call was a coming-out party of sorts for McNerney, who took over as Boeing’s chairman and CEO on July 1, the start of the third quarter.
Until Wednesday’s earnings call, McNerney had said little as he reviewed business units, got to know managers and met with customers and suppliers.
During the call, McNerney repeatedly stressed the need for all business units to reduce costs by working more efficiently and doing more with less, in the same way Boeing has streamlined airplane and defense manufacturing.
He specified “costs managed out of the center of the company,” which would mean functions like legal services, human resources and the vast shared-services group headquartered in Bellevue, according to Todd Blecher, a Boeing spokesman.
McNerney set a long-term goal of achieving 7 percent profit margins across the company and double-digit profit margins within the commercial-airplanes unit. The latter could take a while; the unit had third-quarter profit of $238 million on $4.9 billion of sales, a 4.8 percent margin.
“I think focusing on margins is the right strategy; that’s really the company’s best leverage to increase earnings,” said Joseph Nadol, an aerospace analyst at J.P. Morgan Securities.
McNerney continually returned to the challenges that await in ramping up commercial-airplane production, and the profit opportunity that exists if Boeing gets it right.
His concern is understandable, given recent history.
In the late 1990s, Boeing delivered 271 jets in 1996, 375 jets in 1997 and 563 jets in 1998 — a whopping 108 percent jump in three years.
But neither suppliers nor Boeing’s own production systems were ready, resulting in a period of “profitless prosperity,” said Robert Spingarn, an aerospace analyst with Credit Suisse First Boston.
Sales soared, Spingarn said, but the company actually lost money as overtime, parts shortages and late-delivery penalties piled up.
Things got so bad that then-CEO Phil Condit nearly lost his job, and Alan Mulally was tapped to lead commercial airplanes after Ron Woodard was fired over the problems.
McNerney, one of Boeing’s most important suppliers when he was chief executive of General Electric’s aircraft-engines unit, clearly wants things to go more smoothly this time around.
That is why he is content to keep the outlook for 2006 airplane deliveries at 395 jets, the same as forecast prior to the Machinists’ strike, rather than rush to try to recover the money lost because of the work stoppage.
“It’s a balancing game: Move as quickly as you can, but in a reasonable manner so you don’t lose money. And make sure your suppliers are on board,” Spingarn said.
“If you get ahead of them you invite a whole lot of other problems that you cannot control.”
David Bowermaster: 206-464-2724 or email@example.com