Aircraft manufacturer Boeing reported healthy profits Wednesday as Boeing Chairman and CEO Jim McNerney assured investors that declining oil prices won’t crimp airlines’ desire to buy more fuel-efficient planes.
McNerney seemed to allude to events such as the shooting down of Malaysia Flight 17 over Ukraine in July when he said, “Notwithstanding a somewhat richer mix of global economic and geopolitical developments throughout this year, which we are monitoring very carefully, global passenger traffic trends are strong and air cargo traffic continues to gradually improve, although the latter still remains a watch item for us.”
In a conference call to discuss the company’s third quarter results, McNerney told investment analysts that replacement demand from the airlines was “an increasingly important market driver, with airlines opting to introduce newer, more efficient airplanes” rather than keeping older, less fuel-efficient models in service.
Asked about the effect of declining oil prices on airlines’ decisions to buy Boeing’s fuel-efficient planes, McNerney said, “airlines tend to buy the distribution around the mean [price of fuel] and, in a volatile world, that distribution is pretty wide.”
He said oil prices would need to fall “a long way from where we are now” before “you begin to see even [an] incremental impact” on airlines’ demand for more fuel-efficient aircraft.
New Boeing planes such as the 787 are up to 20 percent more fuel efficient than the planes they’re replacing, McNerney said.
Historically, McNerney said, 75 percent of the demand for commercial aircraft has come from global economic growth, with 25 percent coming from airlines replacing older planes with newer ones.
But that ratio has changed, with half of total demand now coming from airlines replacing their older aircraft.
For the first nine months of this year, Boeing delivered 528 commercial aircraft compared to 476 for the same period in 2013.
Boeing’s backlog for commercial aircraft stands at over 5,500 airplanes, or seven years’ worth of production at current rates, and is worth $430 billion.
Much of the Boeing call with the Wall Street analysts was spent discussing the still-high cost of building each 787 Dreamliner, Boeing’s newest airplane.
“We’re not cash positive [on each 787] yet; we expect to be cash positive in the 2015 time frame” said Boeing chief financial officer Greg Smith but unit costs are coming down. The company builds ten of the 787 aircraft per month.