October 21, 2015 / 11:45 AM / 3 years ago

Boeing says 777 output may fall as losses narrow on 787

(Reuters) - Boeing Co (BA.N) posted better-than-expected quarterly results and lifted its financial outlook on Wednesday, but signaled it may juggle plane production to keep profits flowing as one of its two main cash cows dries up.

Visitors look at models of Boeing aircraft at the Aviation Expo China 2015, in Beijing, China, in this file picture taken September 16, 2015. REUTERS/Jason Lee/Files

Boeing said it could cut production by as much as 15 percent on its 777 long-range, widebody jetliner, one of its most profitable planes and a key source of cash.

The talk of a possible slowdown to as few as seven a month from the current 8.3 came as Boeing posted narrower losses on its 787 Dreamliner and voiced confidence in that plane’s ability to generate cash and fill the gap.

The world’s largest plane maker said it also is still considering an increase in production of the single-aisle 737, its other main cash cow, despite concerns from engine maker CFM International, a joint venture between General Electric Co (GE.N) and Safran SA (SAF.PA) of France, about meeting those rising rates.

Taken together, the moves would cushion the blow of what had already appeared to be an inevitable 777 production cut as Boeing shifts to a newer model, the 777X, in 2020, because it has failed to sell out all of the remaining production slots.

The cut grew more likely last week when the head of Delta Air Lines Inc (DAL.N) said prices for used 777s were falling, a comment seen undercutting new plane sales.

Boeing has a lot of 777s to sell before switching to the 777X, said RBC analyst Rob Stallard. “Delta has got the word out there that pricing is soft and that has not made Boeing’s life easier.”

Boeing Chief Executive Dennis Muilenburg stressed on a conference call that 777 production is “essentially” sold out through 2016 and more than half of 2017. “The value of the 777 is holding up very well,” he said.

But he acknowledged Boeing was doing “scenario planning” for a rate reduction, even though “we don’t see any scenario that would take us below seven a month.” A decision would come early next year and take effect around 2018, he added.

A cut in rate would hit profit, since the 777 has a cash margin in excess of 20 percent, Stallard said.

Boeing is banking on the 787, its newest jet in production, to begin generating cash flow in the fourth quarter. Figures it released on Wednesday showed the loss on each 787 leaving the factory narrowed to about $15.5 million in the third quarter, continuing a narrowing this year and smaller than a $20 million loss many analysts had expected.

The improvement came as some analysts questioned whether Boeing would ever recover its full investment of more than $40 billion, and may have to take an accounting charge to write off some 787 costs.

Core earnings for the quarter, which exclude some pension and other costs, rose 18 percent to $2.52 per share in the third quarter, helped by higher commercial aircraft deliveries and improvement in its defense business.

On that basis, Wall Street had expected $2.22 per share, on average, according to Thomson Reuters I/B/E/S.

The plane maker notched up its forecast for jet deliveries for the year to between 755 and 760, from 750 to 755, and said it now expects core earnings of between $7.95 and $8.15 per share, up from $7.70 to $7.90 a share previously. That is in line with analysts, who expected $8.06 per share, on average.

Reporting by Alwyn Scott in New York and Ankit Ajmera in Bengaluru; Editing by Anil D'Silva, W Simon and Bill Rigby

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