Janes Defence

April 27, 2016

Defence sales keep Boeing flying

Strong F-15 fighter jet and C-17 transport jet shipments drove a 34% revenue increase in the Boeing Military Aircraft division during the first three months of 2016, as civilian sales tailed off.

Sales at Boeing Defence, Space & Security (BDS) rose by an impressive 19 percent during the first quarter, to $7.95 billion. The increase compensated for a sharp drop in billings at the aerospace manufacturer’s civilian aircraft division. Overall Boeing’s sales during the first three months of 2016 rose by just 2%, barely keeping pace with inflation.

In a telephone call with analysts shortly after the results were published, Dennis Muilenburg, the company’s chief executive officer, attributed the performance to ramped up deliveries of F-15 fighter jets and C-17 transport aircraft. Production at Boeing’s defence arm, was driven by the Boeing Military Aircraft division, where revenues shot up by an impressive 34 percent during the quarter, to $3.7 billion.  

According to Boeing’s 10-Q filings, the unit shipped 49 major platforms during the quarter, up from 42 during the same quarter last year. These included 18 new and remanufactured Apache helicopters, 3 C-17 Globemaster IIIs, 12 new and remanufactured Chinook C-47 helicopters, 4 F-15s, 8 F/A-18s and 4 P-8s. One satellite was also shipped.

Stumbles on KC-46
That said, the quarter was not without its challenges. Boeing was forced to take a $156 million after-tax charge on the troubled KC-46 Tanker program. The charge relates to additional development work needed on the aircraft’s electrical and fuel systems, in the wake of a contamination incident that occurred last year. The write-downs reflect the costs of incorporating engineering changes into aircraft that have already been built and/or put into production.

That said, Boeing has “raised the level of enterprise focus,” on executing and delivering the KC-46, which Muilenburg called a “franchise,” program, of around 400 aircraft, that will produce profitable growth for decades to come. “We are making the investments necessary to meet customer commitments, deliver the initial production aircraft on schedule and transition the program into full production,” said Muilenburg. Boeing’s CEO also noted that the company had made several personnel changes, “to provide additional emphasis and oversight on the program.” These included the nomination of Leanne Caret as CEO of Boeing Defence, Space and Security in February, replacing Chris Chadwick, 55, who retires this spring.

Boeing officials confirmed that key milestones on the program are being met and that they expect that 18 tankers will be delivered by August of next year, as planned. As of this morning, 80% of the flight testing related to Milestone C, the production approval decision, has been completed. Boeing also has 15 KC-46s in its supply chains, including seven which are being worked on in its Everett, Washington factory.

Continued positive outlook on defence
Going forward Boeing officials are maintaining revenue and profits targets for the coming months. Muilenburg cited continued global economic growth, strong passenger traffic and airline profitability, as key customer demand drivers. On the defence side he cited solid Pentagon support for major Boeing programs. These include the US Navy’s request for 16 F-18/A SuperHornets (including two of which are already in the system) for fiscal 2017. This comes on top of new and follow-on business at Boeing such as a contract with the US Navy for 20 P-A Poseidon aircraft, a contact award for 117 US Army AH-64 Apache aircraft, and a US Air Force order of 15,000 JDAM tail kits.  

Demand for both the F-15 and F-18 platform also remains strong. Opportunities for the aircraft in the Middle East, Europe and possibly Canada, will extend their lives into the early 2020s. Muilenburg cited the Persian Gulf countries of Kuwait and Qatar as particularly promising markets. However Boeing’s CEO reminded the analysts that as such deals are generally negotiated at a “state-to-state,” level, precise forecasts are difficult. Boeing officials also admit that the strong US dollar, which makes American products more expensive in international markets, is creating challenges, particularly in competitions with European-based firms, such as Airbus.

Boeing also reiterated its commitment to penetrate the growing services market, which is projected to reach $4 trillion during the coming two decades. The company is looking to supply a growing range of OEM parts related to its older aircraft, and to increase its modifications and upgrades business.

Peter (at) peterdiekmeyer (dot) com


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