Dreamliner backlog has Boeing bullish on North Charleston program’s future

Boeing Co.’s 787-10 will be made exclusively at the company’s North Charleston campus.

Airlines looking to order one of Boeing Co.’s 787 Dreamliners better be prepared for a wait — the popular wide-body commercial plane is sold out well into 2019.

“We have a few open positions in 2019 that we’re working and we’re largely focused on filling out the 2020 production skyline,” Dennis Muilenburg, Boeing’s chairman, president and CEO, said this week during a conference call with analysts. Skyline is an aerospace term for production backlog.

There are more than 700 orders waiting to be filled for the Dreamliner, which is made at Boeing’s campus in North Charleston and in Everett, Wash. The aerospace giant recently boosted production of the plane to 12 per month to meet the demand, and has plans to eventually build 14 Dreamliners each month.

Boeing wants the next ramp up to happen before 2020, but hasn’t determined exactly when it will occur.

Muilenburg said “securing additional orders to solidify our end-of-the-decade, 14-per-month production rate plan remains a priority,” but added the company won’t increase production rates if the demand isn’t there.

“We haven’t pinned down a specific decision point yet because we’re going to keep a close eye on the market, the signals from our customers,” he said. “We’ve got time to do our due diligence here.”

There have been 19 net orders for Dreamliners in 2016, compared with 50 for the same period a year ago, Some airlines are holding off on placing orders because of the long backlog, and JP Morgan analyst Seth Seifman said in a report Thursday that the wide-body market is deteriorating.

“In our view, investor concerns about demand remain a key issue for the stock and will continue to weigh on valuation,” Seifman stated.

Muilenburg said the company sees “isolated pockets of market softness such as Russia and Brazil” but Boeing projects healthy future demand for commercial aircraft. He said fluctuating oil prices “have not substantially changed (customers’) view on future fleet planning or their commitment to existing delivery schedules.”

In short, slower orders for the Dreamliner are not yet a concern.

“We continue to make progress on the 787 program, including successfully transitioning to the 12 per month rate, increasing deliveries of the 787-9, reducing production flow times and lowering unit cost while introducing the 787-10 into the production system,” said Greg Smith, the company’s chief financial officer.

The 787-10 model, the newest and largest member of the Dreamliner family, was declared “ready for production” during the second quarter, Muilenburg said. The “Dash-10” will be built exclusively in North Charleston, with the first delivery scheduled for 2018. The 787-10 is a simple, stretched version of the popular 787-9 model, and both planes have more than 95 percent commonality.

Boeing is expecting little disruption as the 787-10 moves into the production line, along with the 787-9 and the original 787-8 Dreamliner.

“We’ve already begun major assembly work into the 787 line on the Dash-10,” Muilenburg said. “So that manufacturing commonality is holding up as we’re going through implementation.”

The Dreamliner program moved into “cash positive” status late last year, which means Boeing is making money on each new delivery and slowly chipping away at the nearly $30 million in deferred costs run up during early production.

“Recovering the 787 deferred production over the remainder of the decade will be a significant driver of cash flows,” Smith said. “We’ve certainly got lots of work in front of us, but I think when you’re out in the factories today, you’ll see some very good momentum and very good focus on overall productivity initiatives that are also obviously going to help that cash profile going forward.”

Boeing, which delivered its 400th Dreamliner in May, expects to recover the deferred production costs over roughly the next 900 deliveries.

“The maturation of the 787-9 and the start of assembly on the 787-10 puts North Charleston’s site in a very good position to help claw back the deferred production costs,” said Saj Ahmad, chief analyst for Strategic Aero Research. “It’s worth remembering the 787-10 was only launched three years ago. This is a 15- to 20-year program designed to replace (many existing wide-bodies). There simply is nothing like it in the market today.”

Ahmad said reports of future orders, such as a rumored deal by Dubai-based Emirates to buy up to 100 787-10s, should keep Dreamliner production busy well into the next decade.

“There’s good reason why Boeing is so upbeat about prospects not just for the program, but in particular the 787-10, which has no competitor at all.”

Reach David Wren at 843-937-5550 or on Twitter at @David_Wren_