Boeing begins low-rate production on tanker

By Dan Catchpole
Everett Herald Writer

Boeing has started low-rate initial production on the KC-46 tanker, which is still in development.

The first two production planes are in the company’s Everett plant, CEO Dennis Muilenburg said Wednesday during a conference call with stock analysts and reporters.

The company posted strong earnings for the second quarter of 2015, with revenue increasing and healthy cash flow despite having to pay for cost overruns on its aerial refueling tanker development program.

The aerospace giant could consider rate decreases for the classic 777 line in 2016, the company’s new CEO, Dennis Muilenburg, said during a conference call with stock analysts and reporters.

It was his first such call as CEO, a position he took over July 15. His predecessor, Jim McNerney was also on the call.

Muilenburg said the priorities during his tenure are first, investing in innovation, then returning cash to shareholders, and finally, when it makes sense, acquisitions.

Overall, he stressed continuity with Boeing’s recent leadership. Before taking over as head of the company, he ran Boeing’s defense and space division, which is based in St. Louis. He began his career with Boeing in metro Puget Sound more than 30 years ago.

He has a “very deep appreciation” for the company’s Washington workforce, he said when asked about the lingering bitterness over the company’s most recent contracts with its two biggest unions. “I have a great deal of respect for our team.”

He did not say whether Boeing will continue to oppose the International Association of Machinists and Aerospace Workers’ (IAM) efforts to organize the company’s North Charleston plant, which houses one of its two 787 Dreamliner assembly lines.

The company’s core earnings per share were $1.62, well above the $1.37 consensus among analysts polled by FactSet. It was down, though, compared to the same period last year, when Boeing posted core earnings per share of $2.42.

Boeing spent $2 billion buying back 14 million shares, a move which increases returns to investors.

The company continues spending more on the 787 Dreamliner program than it brings in, though the second quarter increase was consistent with what Boeing executives had forecast, J.P. Morgan analyst Seth Seifman said in a research note to investors Wednesday morning.

Dreamliner deliveries in the second quarter were up slightly compared to the previous year — 34 this year compared to 30. In the first six months of the year, Boeing delivered 64 787s compared to 48 during the same period last year.

Last week, Boeing acknowledged it would have to cover $536 million in cost overruns on the KC-46 aerial refueling tanker due to redesign, manufacturing and reinstallation expenses. That works out to about $0.77 per share.

The company lowered its forecast for annual earnings per share by $0.50, so less than the tanker costs.

The company has a backlog of nearly 5,700 commercial airplane orders worth approximately $430.8 billion at list prices. The actual sales price, though, are significantly lower, sometimes by as much as 50 percent.

Boeing’s military and space division has a backlog worth approximately $48.4 billion.

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

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