Boeing: 787 unit costs to drop 50% by summer

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Unit costs to produce a 787-8 by July will 50% less that the first aircraft delivered to All Nippon Airways less than a year earlier, Boeing chief executive Jim McNerney said today.

The milestone will coincide with the first aircraft to be built from start to finish at the company's Everett, Washington assembly plant without today's post-certification modifications.

That aircraft, earlier reported by Flightglobal to be Airplane 66, will not require "change incorporations" in a variety of areas, including structures, wiring, systems and interiors.

During a first quarter earnings report on 25 April, McNerney told analysts the "engineering changes", many based on flight test discoveries, have now "largely stopped".

"We will still have planes in modification this summer, but it will be worked down on plan," says McNerney. "By the second half of year, you should notice a significant decline in the number of those planes hanging around." Of the expected 35 to 43 787s to be completed this year, Boeing says more than half will need change incorporations at Boeing's Everett Modification Center. The number is expected to trail off in 2014.

The so-called "right to pre-flight" Airplane 66 will represent a quantum shift in unit price. One analyst during the earnings call estimated the unit price of Airplane 66 to be approximately $186 million, slightly less than the listed sales price of $193.5 million. Of the unit costs, Boeing chief financial officer Greg Smith, while not disputing the analysts numbers, would only say that the first aircraft that avoids the post-production modifications would see a "50% cost improvement on a unit basis".

Beating the listed sales price however does not represent the break-even point for the new model from a unit cost perspective. Boeing earlier estimated that it would not reach that point until it produces 1,100 units, a benchmark McNerney has previously said will occur before 2020.

Making that target will require Boeing to meet its planning production increases and perhaps more. The airframer expects to "systematically ramp" up today's 3.5 aircraft per month rate to five aircraft per month by year's end, further increasing to 10 aircraft per month by late 2013. Helping with production numbers will be Boeing's new final assembly line in Charleston, South Carolina. Boeing plans to roll out its first completed aircraft from the Charleston assembly line on 27 April, a 787-8 that is to be delivered to Air India in June.

Boeing plans to ramp up its overall aircraft production rate more than 40% in the next three years. That includes an increase for the Boeing 747-8 up to two aircraft per month by the third quarter. For the 777, monthly output would increase from seven aircraft to 8.3 in the first quarter of 2013.

In total, the company plans to deliver 585-600 aircraft this year, including 75-80 787s and 747s, split roughly half and half.

From a development perspective, McNerney says the company's focus is on the 787-9, the re-engined 737 Max and the KC-46A tanker, based on the 767. McNerney says the 787-9 will fly for first time in the second half of 2013 and be delivered to the launch customer Air New Zealand in early 2014.

Of the business environment, McNerney says despite the "choppy pace" of the slow economic recovery, global demand for aircraft is "strong and growing", driven in part by retirement and replacement cycles. He notes that cargo traffic remains below long term trends, but that it is stabilising and projected to improve in second half. He says aircraft financing is "broadly adequate".