Low fuel prices and an unstable global economy haven’t shaken Boeing’s confidence in its 787 Dreamliner program.
Company executives said Wednesday that this year’s production increase is still on target, plans are underway to expand the North Charleston campus and deliveries are expected to match record levels set in 2015.
“We’re bullish about our prospects, but also paying attention to what’s happening in the macroenvironment around us,” Greg Smith, Boeing’s chief financial officer, said during a conference call.
Boeing started making money on every Dreamliner it sells starting last quarter, stabilizing the program’s deferred production costs at about $28.5 billion. Smith said the aerospace giant will start chipping away at those expenses when the North Charleston and Everett, Wash., assembly plants combine later this year to increase production to 12 Dreamliners every month from 10.
Increased efficiencies at those factories are driving down the cost of building the jets, with production expenses for the 787-8 model falling 40 percent and the 787-9 model decreasing by 30 percent since deliveries of those models began. Smith said deliveries of the newer and longer 787-9 variant will “notably exceed” the 787-8 in 2016.
Smith said last year’s 71 Dreamliner orders “shows the healthy market demand for this compelling wide-body airplane” and its backlog of 800 orders “fully supports our planned production rate increases.”
Boeing plans to spend $2.9 billion on capital improvements this year, much of it related to new facilities and equipment for the long-range 777X wide-body that will be built in Everett.
Some of that money also will go toward “expansion of our Boeing South Carolina facility to support the 787 rate increases,” Smith said.
Boeing spokesman Charles Bickers said the company “doesn’t want to be any more specific than we are investing in the tools and processes necessary to help support” the planned rate increase.
CEO Dennis Muilenburg said low oil prices, which have triggered concerns in other manufacturing sectors, aren’t hurting Dreamliner sales.
“Based on discussions with our customers, lower oil prices have not substantially changed their views on future fleet planning or their commitment to existing delivery schedules,” Muilenburg said.
While the Dreamliner has been marketed as a fuel-efficient alternative to aging airline fleets, Muilenburg said other selling points — such as lower maintenance costs, higher passenger and cargo revenues and greater range — “provide significant value to our customers over the life of the aircraft.”
Low oil prices provide multiple benefits for airlines looking to buy Dreamliners, said Saj Ahmad, chief analyst at London-based Strategic Aero Research. For example, some carriers are locking in long-term fuel contracts at rates low enough that “any uptick in costs would then make airplanes like the 787 even more attractive to operate,” he said.
If prices continue to decline, “the high capital cost of purchasing a 787 will ensure that its operational costs are even lower than advertised,” Ahmad said. “Either way, the 787 family is in a winning position.”
Richard Aboulafia, an aerospace analyst with Fairfax, Va.-based Teal Group, said low fuel prices could remove much of the incentive for airlines to invest in new planes.
“Cheap fuel is certainly a major cause of (purchase) deferrals,” Aboulafia said.
He said low interest rates have bolstered Dreamliner sales in recent years — a factor that’s at risk if the Federal Reserve increases rates as promised. The central bank Wednesday kept interest rates unchanged following December’s move to raise its benchmark rate by a quarter-point.
“Does all of this mean demand for Dreamliners will collapse? Nah,” Aboulafia said. “This plane really is very appealing for international routes. It’s just that some of the urgency of that replacement demand has been removed.”
Boeing set a record with 135 Dreamliner deliveries in 2015 and the company expects to match those numbers this year. The company also expects to begin production of the 787-10 — a stretch version of the 787-9 — later this year. That plane will be made exclusively at the North Charleston campus.
Boeing is one of the Lowcountry’s largest private-sector employers, with a workforce of about 7,500 people who make parts for and assemble the Dreamliner at several North Charleston locations. Boeing South Carolina also makes engine inlet components for the single-aisle 737 MAX and designs engine nacelles for the 777X.
While Boeing’s fourth-quarter performance beat estimates, the company’s 2016 outlook came in well below Wall Street’s expectations. That triggered a sell-off in Boeing stock, which hit a 52-week low after the earnings announcement.
For the three-month period ending Dec. 31, Boeing earned $1.03 billion, or $1.51 per share. A year earlier, the company earned $1.47 billion, or $2.02 per share.
Last week, Boeing said that its fourth-quarter would include a $569 million charge related to cutting production of its 747-8 cargo plane due to a slowdown in its air-freight business.
Its adjusted profit was $1.60 per share, Revenue declined to $23.57 billion from $24.47 billion.
Looking ahead, Boeing anticipates its 2016 adjusted profit in a range of $8.15 to $8.35 per share on revenue between $93 billion and $95 billion.