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Originally published April 21, 2010 at 11:44 AM | Page modified April 22, 2010 at 1:19 PM

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Boeing execs bullish on outlook for 787, aviation business

Boeing Commercial Airplanes chief Jim Albaugh said he's becoming "very confident" about the 787, as the company reported healthy first-quarter profits Wednesday.

Seattle Times aerospace reporter

Boeing executives maintained a positive outlook for the year ahead as they reported healthy first-quarter profits Wednesday.

Despite the clouds of volcanic ash lingering over parts of Europe, they project a continued global economic recovery that will buoy the aviation business.

In a teleconference with analysts and news media, CEO Jim McNerney expressed renewed confidence in the schedule for both Boeing planes in flight testing: the 787 Dreamliner and the 747-8 jumbo jet.

Jim Albaugh, head of the commercial-airplanes division, also spoke glowingly about the 787's performance in a separate interview with The Seattle Times.

He said flight-test data show the 787 looks increasingly like the market game-changer Boeing projected it would be and will meet all the performance targets promised the airlines.

"Based on what I see from a performance standpoint, from an aerodynamic standpoint, from an engine standpoint, from a weight and range standpoint, I think we are going to be OK," Albaugh said. "The performance of the airplane very closely meets the models we had in place ... We're starting to feel very confident."

During the earnings call, McNerney said a larger version of the 787 that Boeing has studied, the 787-10, looks less likely.

He said improvements to the second version of the Dreamliner, the 787-9, as well as possible design changes to Boeing's larger 777, may cover the requirements of airlines in the large twin-jet category, without the need for a 787-10.

Potential changes to the 777 include new carbon-fiber structure, he said — presumably new composite wings.

Albaugh said later that McNerney was "commenting on some preliminary data that was shown to him," and no firm decision on the 787-10 has been made.

The Federal Aviation Administration (FAA) gave the 787 expanded "type inspection authorization" Tuesday, which means FAA inspectors will join Boeing engineers aboard the test airplanes to monitor progress and collect data.

McNerney said that although this key milestone was reached about a month later than originally planned, the flight-test schedule still has four to six weeks of buffer to cover unexpected contingencies.


Albaugh conceded the disruption in Europe caused by the Eyjafjallajökull volcano will put financial pressure on some key customers such as British Airways.

"We all know the financial position of many of the airlines is fragile," said Albaugh.

But the dangers from volcanic ash are real, he said.

"We have data on what happens to the engines when you get the silica-based ash into the hot side of the turbine. It turns to glass. It can impact the cooling. It can impact the shape of the blades. It's something we take very seriously," Albaugh said.

As the chaos in Europe appears to be lifting, Albaugh said he doesn't anticipate any impact on jet deliveries from Boeing's factories.

Asked about the Air Force refueling-tanker competition, a day after Airbus parent EADS re-entered the race for the $40 billion contract and stated its goal to beat Boeing on price, Albaugh took a dig at Airbus for taking subsidies to fund airplane development.

"We do have to make money with our programs," he said, "We develop our airplanes the old-fashioned way. We pay for them ourselves.

"The good news is we've got another 60 days now to try to drive the cost of this airplane down," Albaugh added. "I think we'll be very, very competitive."

After recently announcing production-rate hikes in Everett starting next year, Boeing will decide by June whether to increase production of the Renton-built 737 as the global economy strengthens.

"The pressure is upward on the 737 line," Albaugh said.

He said a glitch in current production programs stemming from problems with a seat supplier is under control.

Japan's largest aircraft-seat supplier, Koito Industries, earlier this year admitted it had falsified data on fire and impact protection in its products, resulting in certification and delivery delays.

Albaugh said the problem is being "managed very aggressively" by Boeing, which is doing "workarounds" and looking for alternative suppliers.

"We're working with (Koito) because they have seats we need," said Albaugh. "We also want to make sure we don't find ourselves overdependent on one supplier."

Albaugh said it's possible the decision between a 787-10 and a revamped 777 will be made this year. Also, a decision on whether or not to develop a new engine for the 737 will certainly be made by year-end.

"We've got to put two new airplanes into service and we've got to make some decisions on the future of Boeing Commercial this year," Albaugh said. "This is a pretty big year for us."

Boeing said Wednesday it had booked profit of $519 million, or 70 cents a share, on first-quarter revenue of $15.2 billion. That was down 14.9 percent from a year earlier, largely because of a previously announced, one-time $150 million accounting charge due to the recently passed health-care legislation.

Analysts surveyed by Thomson Reuters expected a profit of about 63 cents a share, according to The Associated Press.

Profit margins were just over 9 percent for the quarter in the commercial-jet division — flat from a year earlier after accounting for a one-time charge in 2009.

Margins for the full year are expected to be lower as Boeing begins delivering the initial, low-margin 787 and 747-8 jets, as well as incurring the costs of fleet support and training as airlines introduce the two new airplanes.

The quarter's commercial-airplane deliveries were down 13 jets compared with a year earlier, but Albaugh said that was largely a result of pulling some planned January jet deliveries forward so that they were booked at the end of 2009.

Boeing ended the quarter with $10.4 billion of cash and liquid securities, $860 million less than at Dec. 31. A major reason for the drop is the buildup of 787 and 747-8 inventory.

The company projects spending about $4 billion on R&D this year, the bulk of it in the commercial-jet unit. It also plans $1.9 billion in capital expenditures, including $700 million for construction of the new 787 assembly line in Charleston, S.C.

Boeing shares closed Wednesday up $2.75, or 3.9 percent, at $74.16.

Dominic Gates: 206-464-2963 or

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