Increasing cost pressures in the defence market and another major financial charge on the KC-46A tanker programme eroded Boeing’s financial performance in an otherwise healthy second quarter.

Operating margins for the Commercial Airplanes division increased 2.4 percentage points to 11.4% compared to last year on 1% sales growth over the same period. Overall, Boeing’s sales grew 5% year-over-year in the second quarter, while net earnings leaped 26% to $2.2 billion. Operating margin across the company inched forward to 11.2%.

The commercial and services markets performed as expected, but Boeing lowered guidance on operating margins for the Defense, Space and Security division. The operating margin for the full year is now expected to range between 10-10.5% for BDS, versus a previous forecast of 11%.

Moreover, a recurring management problem on the KC-46A re-appeared in the second quarter. Boeing reported new pre-tax charges related to the new US Air Force tanker amounting to $426 million, adding to more than $3 billion of previous charges logged over the course of the seven-year-old development programme.

Those two disclosures combined to force Boeing’s share price to dip slightly in morning trading, albeit from near a historic peak of $358 per share when the market opened on 25 January.

But Boeing chief executive Dennis Muilenburg remains upbeat on the Boeing’s performance in the second quarter.

After inducting the first two test aircraft into a low-rate initial production line, the 777X programme remains on track for first flight next year, with GE Aviation’s GE9X engines behind schedule but still promised to be available when called for.

Muilenburg’s commercial sales chief, Ihsanne Mounir, has helped filled a once-gaping hole in the production schedule for the current 777 assembly line, with 29 new orders booked so far this year and 29 more committed to by Volga-Dnepr at the Farnborough air show last week. Mounir still “has more work to do” to complete the“skyline” of 777 production slots through the bridge to the new model, Muilenburg says, but the pressure is down.

Boeing’s manufacturing operations for single-aisle aircraft also showed no signs of slowing. Production rates for the 737 family increased to 52 per month in June, another increase on a line headed to 57 per month next year and perhaps more in 2020. Meanwhile, Boeing delivered 52 re-engined 737 Max aircraft in the second quarter.

The long shadow cast by the KC-46A’s development troubles also may finally be coming to an end. The latest charge covers the cost of modifying test and production aircraft to the final delivery configuration. Boeing completed all flight tests required for first delivery in the second quarter, and the hand-over for the first aircraft is planned for October. The USAF plans to buy 179 KC-46As with an estimated contract value of $30 billion.

Boeing’s position on the status of the proposed New Mid-Market Airplane (NMA) remained unchanged after the second quarter earnings call. A decision on whether to launch 200-270-seat family of aircraft with 4,000-5,000nm range is expected in 2019, with an entry-in-service targeted for six years later, Muilenburg says. The company is still working to “close the business case” for the NMA, which faces the challenge of delivering a widebody travel experience with narrowbody economics.

“That’s frankly the challenge of closing the business case,” Muilenburg says.

Source: Cirium Dashboard