Boeing says it can ride out global recession

After delivering unexpectedly strong fourth-quarter earnings, Boeing management Wednesday defied the gloomy predictions of some analysts and laid out the case for a steady, albeit difficult, 2010.

"The global recession has clearly affected our airline customers," Boeing Chairman and CEO Jim McNerney said in a teleconference with analysts and reporters, but few orders have dropped away. "Despite the challenging environment, our commercial backlog is holding strong."

Boeing's full-year revenue was a record $68.3 billion, though its profit was only $1.3 billion, slashed by charges on the 787 and 747-8 programs totaling $4.1 billion.

Yet fourth-quarter earnings were strong: $1.3 billion from $18 billion in revenue.

"They blew away the fourth quarter," said analyst Joe Campbell of Barclays Capital.

How Boeing fares in 2010 depends on its two new airplanes: the 787 Dreamliner, which is in flight tests already, and the 747-8 jumbo jet, which is expected to have its first flight in a week or so. The plane-maker anticipates first deliveries of both jets by year-end.

The company will spend $700 million this year to expand its 787 manufacturing site in Charleston, S.C.

And management expects to decide this year on another potential investment: whether to put a new engine on the 737, McNerney said.

Prospects for airplane deliveries, a vital issue to employment in Washington state, remain relatively steady. McNerney said the pace of deferral requests has slackened, after customers in 2009 canceled 121 orders and deferred some 271 others.

In 2010, Boeing projects delivering 460 to 465 airplanes, about 20 fewer than this year. Those delivery slots are already sold out, with some overbooking that could cover cancellations.

The decrease in deliveries from 2009 will be almost entirely in the more expensive wide-bodies, built in Everett, including about a dozen fewer 777s because of a planned production cut in June.

Despite recent predictions to the contrary from some aviation experts, McNerney said Boeing will hold its current production rate for the Renton-built 737 single-aisle jet "for the foreseeable future."

The projection presumes only a "few" Dreamliner and jumbo-jet deliveries by the end of this year, perhaps about five 787s and a couple 747-8s.

By the end of 2010, the company expects to have, in addition to four 787s in final assembly and six flight-test airplanes, about 20 additional completed Dreamliners rolled out.

But before delivery to customers, those early production planes will have to be modified with various changes mandated during the federal certification process. Some will be modified in Everett, some in San Antonio, Texas.

Even with production steady, Boeing anticipates "ongoing head-count reductions in light of continued market pressures and related productivity requirements," McNerney said.

Last week, the commercial-airplanes division said it would likely be hiring in the early part of this year, then reducing employment in the second half, with a likely net decline in 2010 of about half the 4,300 positions cut in 2009.

Boeing's cash position, which seriously dwindled in 2008, was boosted in 2009 by its borrowing of more than $6 billion.

Thanks to that added debt and strong operating cash flow, the company ended the year with more than $11 billion in cash and liquid investments, up from $3.3 billion a year earlier.

Chief Financial Officer James Bell said this provides "ample liquidity," but the company's cash squeeze isn't over yet.

In 2010, as Boeing spends money building Dreamliners that will stack up in Everett but await delivery in 2011, Bell projects operating cash flow to be "approximately zero."

Only in 2011 will Boeing's cash squeeze begin to ease.

"As we deliver (the 787s and 747-8s) next year, we expect operating cash flow to rebound to a level above $5 billion in 2011," Bell said.

Revenue for the current year is projected to be down more than 4 percent, to between $64 billion and $66 billion.

With development costs remaining high and revenue down, underlying profit margins in the commercial division are projected to slip from around 10 percent of revenue in 2009 (excluding one-time charges) to about 7 percent in 2010.

More than a third of Boeing's projected total capital expenses this year will be devoted to building its second 787 final-assembly line and jet-delivery center in Charleston, S.C. Spending on R&D is forecast at about $4 billion, after ballooning to more than $6 billion last year due to high extra costs on the two new airplane programs.

Bell said research-and-development costs will remain high in 2011 at about $3.5 billion, because the company will still be funding development work on the 787-9 and the 747-8 passenger model, and also potentially investing in putting a new engine on the 737.

Wall Street analysts have recently been sharply divided on Boeing's prospects. But the markets reacted positively to the steady production outlook and the guidance offered for 2011.

Boeing shares closed up more than 7 percent at $61.93.

"We went into the teleconference call with a huge degree of uncertainty," said Campbell of Barclays. "What the call did was calm the markets down."

The company "put a lot of cushion" in its projections, said Campbell.

"Unless Boeing has a major problem (from the 787 and 747 flight tests), the earnings will look about the way they said."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com