Boeing delivered second quarter results on 25 July that surpassed already high expectations set by Wall Street analysts, then raised a full-year outlook seemingly in defiance of the macroeconomic indicators forcing less fortunate industries to lower earnings per share estimates.
No great analytical skill was needed to perceive Boeing's positive momentum. The company announced on 5 July that it had delivered 150 commercial aircraft from April to June, 32 more than the same period last year. It was the highest second quarter output since 2000, when Boeing delivered 167 aircraft, including three types - the 717, 757 and MD-11 - that are no longer produced.
Boeing easily beat the consensus optimistic estimate for this year's second quarter anyway, increasing revenues 21% to $20 billion while nudging net income only 3% higher to $967 million.
Analysts anticipated higher sales from Boeing's commercial aircraft division, but may have been surprised by the strength of the defence, space and security segment.
US defence spending, which accounts more than 75% of Boeing's military backlog, has flat-lined and is poised to enter a down-cycle. However, a nearly $1 billion cash injection in the second quarter from an F-15 deal with Saudi Arabia and other foreign contracts for surveillance aircraft and attack helicopters buoyed the division despite domestic spending changes.
But the pendulum of the company's momentum on profits is clearly swinging in the direction of the commercial sector. Since acquiring McDonnell Douglas in 1997, Boeing's commercial and military divisions have taken turns driving the company's financial progress. Military spending bolstered Boeing's results in the last global recession, but the commercial aircraft division is now surging forward.
This year, Boeing Commercial Airplanes (BCA) accounted for 59% of the company's revenue and 78.2% of its profit in the second quarter, and the ratios are likely to climb only higher.
BCA aircraft deliveries are already approaching record levels, but Boeing is not yet halfway through an across-the-board production ramp. The monthly output of 737s rose from 31 to 35 last year, and will grow to 42 per month in 2014. The rate for 787s has increased from one per month last year to 3.5, but will continue to ramp up to five by end-year and 10 before 2014. The 777 is growing from an output of seven per month to 8.3.
Keeping the programmes on track will not be easy. Boeing's executives have several distractions, not least ushering into service the 787-9, developing the 737 Max and launching the 787-10X and possibly the 777X.
Anticipating challenges ahead, several analysts quizzed McNerney and chief financial officer Greg Smith about preparations on a teleconference call discussing the earnings results.
The 787 programme, for example, is still struggling to produce the aft fuselage reliably to specification, while some suppliers, such as Alenia Aeronautica, have required Boeing's intervention to get back on track.
"The aft fuselage in Charleston is a hot spot for us and we're addressing it," McNerney says. "I don't think it's a showstopper in terms of getting to rate. There are a couple other areas in the supply chain that have been known to us for a couple years now and we're addressing them. We have a little more work to do in a few places."
Boeing has inserted risk provisions into its full-year guidance, including productivity investments and lower operating margins, as a precaution.
"We are provisioning for some risk there with regards to rate ramp-up that we have planned for the balance of the year," Smith says. "I think we have good plans in place and I think we'll execute that to plan, but we're making sure we're getting everything in order."
Analysts are also questioning the integrity of Boeing's backlog, as fears spread of another US recession and slower economic growth in Asia. So far, that has not yet led to a wave of customers exiting Boeing's multi-year backlog
"The deferrals and cancellations are at or below historical averages," McNerney says. "The world is a fragile one economically. But you've got to keep in mind that these airplanes, half of them, if not slightly more than half in some of the major models, are replacement airplanes where people view this as a quick payback investment."