Boeing CEO says cash will keep coming for shareholders

EVERETT — Boeing CEO Jim McNerney says the company can keep cash flowing to shareholders while also investing in the aerospace giant’s future.

“I see that as very doable,” he said Wednesday morning at the Barclays Select Industrial Conference in Miami.

He also said Boeing won’t have to cut 777 production rates as the venerable airplane’s successor, the 777X, comes into service with airlines early next decade.

Industry analysts and investors have been concerned that Boeing can’t maintain the twin-aisle jetliner’s current production rate of 8.3 airplanes a month through the end of the decade.

McNerney said the company needs to get 40 to 60 orders a year to bridge the transition. It got 63 in 2014. So far in 2015, Boeing has landed one order from Korean Air for five 777 freighters. That deal was announced Feb. 13, and is worth $1.5 billion at current list prices. The actual sales price is typically negotiated down.

Historically, Boeing has been able to charge a premium for the 777. Even now, the airplane has little direct competition. But other airplanes, including Boeing’s own 787-10, are eating into the market for legacy 777 models.

Analysts and even Boeing executives have said there will likely be pricing pressure as it gets closer to first delivery for the 777X.

But on Wednesday, McNerney was upbeat about Boeing protecting its profit margin on legacy 777 models.

“We have a plan to mitigate the margin pressure, let’s say that,” he said.

The plan includes cost cutting and the lack of direct competition, he said.

McNerney said Boeing is not planning a 757 replacement in the short to medium term.

Industry insiders have long speculated about whether Boeing will design a 757 replacement. Boeing might be studying reviving the 757, as the Wall Street Journal reported last week, but that doesn’t mean they’ve committed to anything.

Indeed, at last week’s Pacific Northwest Aerospace Alliance conference and on Wednesday, Boeing executives have pointedly poured water on such a prospect.

“No business case would close today” for a 757 with new engines or a successor airplane, McNerney said.

Whatever Boeing’s next clean-sheet airplane, the company doesn’t “want another 787,” at least in terms of the program risks and financial difficulties, he said.

“We love the airplane,” but the “financial characteristics were not fun,” he said, putting it mildly.

Those concerns echoed his comments last year that the company’s new mantra was incremental technological development, rather than moon shots.

It still costs Boeing to more to make a 787 than it sells for, and industry analysts now expect the program’s deferred production costs to approach $30 billion.

As for Boeing’s defense side, McNerney said he expects it will see “slow, moderate growth.”

The company’s defense unit has faced pressure as its C-17 transport plane and fighter airplane programs wind down. Those are being offset by growth in its satellite and helicopter programs, as well as two military versions of commercial airplanes, the P-8 submarine hunter and the KC-46 aerial-refueling tanker, he said.

He said the defense side would hold its investments levels and margins “come hell or high water.”

In terms of his tenure at Boeing, McNerney said, “We’ve spent a decade trying to get the business fundamentals of this company as strong as the technical” aspects.

Boeing will follow through on plans to spend $6 billion on stock buybacks over the next three years, he said.

The company announced a plan to buyback $10 billion in late 2013. Late last year, it upped the total to $12 billion.

“We’re very mindful of shareholders, as you’ve seen over the last few years,” McNerney said.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.

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