Boeing's next delivery: bonuses
Despite lower revenue in 2010 than a year earlier and higher-than-expected spending on the 787 and 747-8 programs, Boeing booked $4.5 billion in pretax profits. As a result, about 48,500 Washington state employees will qualify for bonuses worth almost three weeks' extra pay.
Seattle Times aerospace reporter
Extra pay on wayHow much: 14.25 days' pay in commercial division, 12 days' pay in defense and space division.
Who gets them: About 48,000 employees in Washington, 110,000 companywide. (Machinists union members not included.)
When: Feb. 18
Total payout: More than $500 million, about $230 million in Washington.
Boeing's leadership insisted Wednesday it can deliver its seven-times-delayed 787 Dreamliner later this year. Chief Executive Jim McNerney even dared to speak of delivering another all-new jet that airlines could fly by the end of the decade.
One near-term delivery is more definite: Despite a fourth-quarter dip in earnings, Boeing said its full-year results mean a hefty annual bonus next month for many local employees.
In a teleconference with Wall Street analysts, McNerney conceded that the 787s already built in Everett need a great deal of work and that a major certification hurdle must still be cleared before the Dreamliner will be allowed to fly direct long-distance flights.
Nevertheless, he confidently predicted Boeing can deliver somewhere between a dozen and 20 Dreamliners this year, along with a similar number of its other, also-delayed new airplane, the 747-8 jumbo jet.
Looking to the future, McNerney sees Boeing replacing the Renton-built, single-aisle 737 with a new jet to enter service in 2019 or 2020. And by mid-decade, it will develop a major wide-body derivative — either a new version of the 777 or a larger Dreamliner, the 787-10.
Despite lower revenue in 2010 than a year earlier and higher-than-expected spending on the 787 and 747-8 programs, Boeing booked $4.5 billion in pretax profits.
As a result, the company's annual bonus plan will next month pay out 14.25 work days' worth of incentive pay — just shy of three weeks' extra pay — for employees in the commercial-airplane division.
Defense less profitable
Workers in the defense and space division will get a slightly smaller bonus, 12 work days' extra pay, because their unit was not quite as profitable.
Members of the Machinists union, the largest union at Boeing, are not included in the incentive plan.
Approximately 48,500 workers will qualify for the bonuses in Washington state. The precise figures won't be known until next month, but the total payout to Washington employees on Feb. 17 should be around $230 million.
Companywide, about 110,000 employees are eligible for the bonuses, with a total payout of more than $500 million.
The bonuses are twice the size of 2009's because profits that year were hit by big accounting charges for the 787 and 747-8 delays.
On the 787, McNerney said the company can not only meet the recently revised 787 schedule — first delivery in the third quarter — but also ramp up Dreamliner production quickly thereafter. It aims to roll out 10 of the jets every month by the end of 2013.
An internal company document shows that before the two most recent delays, Boeing's goal had been to reach that rate at the beginning of 2013.
Chief Financial Officer James Bell said that the billions of dollars in added costs from the 787's delays did not trigger a special accounting charge this quarter. That reassured some analysts, for such a charge would push hopes of eventual profitability for the 787 program far into the future.
McNerney said 75 percent of the Dreamliner flight-test program is complete, with the six test planes having flown for more than 2,500 hours on more than 800 flights.
The main obstacle before the Federal Aviation Administration can certify the plane for commercial use is a series of tests to validate that the jet can safely fly far from any available airport.
This part of the certification — called Extended Twin-engine Operations, or ETOPS — is important to airlines that want to fly across oceans or on polar routes. Without it, a jet would have to stay within an hour of an airport at all times.
Before it can run these tests, Boeing must install fixes for the electrical system faults that triggered an in-flight electrical fire in November, which resulted in various system failures that included pilot displays in the cockpit.
McNerney insisted the 787 will have its ETOPS certification when it enters service.
"We don't want to deliver the airplanes without ETOPS," said McNerney. "And neither do our customers. And neither does the FAA."
McNerney said the fix is not yet installed on the flight-test airplanes. But he expressed confidence the testing will be done in time to deliver the first plane in the third quarter.
"We've largely gotten most other things done, so we've got to get this one done," he added.
McNerney acknowledged that about 20 Dreamliners already rolled out onto the Everett flight line need a large amount of rework before they can fly. The latest airplanes rolling out show "very high levels of completion," he said.
Many issues resolved
"We are now through a lot of the issues that caused some of the backed-up work." he said.
Bell said that as Boeing develops the next derivative of the 787, the larger 787-9 version slated for delivery late in 2013, it will maintain control of the design and cede much less to its supplier partners.
"On the (787)-9, we're keeping a little more close control and doing it more typically how we've done it in the past," Bell said.
However, the shift will not affect 787 production work — actually building the airplane sections — where the major suppliers will retain more autonomy.
The coming acceleration of airplane production means more blue-collar jobs.
Boeing will hire somewhere between 4,000 and 5,000 people this year, many of those to staff the new 787 assembly line in Charleston, S.C., as well as the existing production lines in the Puget Sound region that will ramp up, McNerney said.
As for white-collar jobs, the end of most 787 and 747-8 development work after this year will likely bring a lull in engineering work, but later in the decade it will pick up again.
McNerney said Boeing will likely not re-engine the Renton-built 737, as Airbus has decided to do with its rival A320 family of single-aisle jets. Instead, Boeing aims for an all-new plane to enter service by the end of the decade.
And around mid-decade, Boeing plans to produce a derivative wide-body jet to match up against the Airbus A350-1000.
But during any hiatus in the workload, McNerney insisted, he wants to hold on to local technical talent.
"We will fight hard to preserve the core engineering capability in this company during a period even when we're down," he said. "I'm going to make sure that we don't cut too deep."
After paying taxes of $1.2 billion, Boeing ended 2010 with a profit of $3.3 billion, or $4.45 a share. Revenue fell 6 percent to $64 billion.
The fourth quarter was disappointing: Boeing's profit was $1.56 a share, down from $1.75 per share a year earlier. Not counting special one-time items, Boeing said it would have earned $1.11 per share.
For the year ahead, Boeing forecast deliveries of 485 to 500 airplanes, compared with 462 last year.
It projected that 2011 will bring revenue of $68 billion to $71 billion and profit of $3.80 to $4 a share, lower than Wall Street had previously predicted.
Boeing shares fell $2.22, or 3 percent, to close at $70.02.
The financial results underscore growing worries about Boeing's defense side.
In 2010, the commercial-airplane and defense units had revenue of about $32 billion each, and each earned around $3 billion in pretax profit.
However, the order backlog for the defense division is just $65 billion, or two years of typical revenue. The commercial-airplane unit has a backlog of $256 billion, or eight years of typical revenue.
That stark contrast may widen further as the U.S. government looks to rein in its military spending.
"We do see an extended period of flat to declining U.S. defense budgets," McNerney said.
Dominic Gates: 206-464-2963 or email@example.com