Boeing’s [BA] chief executive on Thursday said that for now the company is maintaining its outlook for operating cash this year despite an announcement by the Air Force last week that it is deferring a formal production decision on the KC-46 tanker program by two months and that deliveries of the first 18 aircraft will be delayed five months.
Boeing guided to about $10 billion in operating cash in 2016 and is “confident” in hitting that number this year, Dennis Muilenburg, the company’s chairman, president and CEO, said at a conference hosted by the investment management firm Sanford Bernstein. Boeing expects to grow its cash performance year over year in the coming years driven by higher commercial aircraft volume, pricing and mix, supply chain improvements, and productivity gains, he said.
While the KC-46 slip didn’t result in Boeing changing its financial outlook, Muilenburg said “We’ll work through the local financial impacts of that, and cash timing of that as part of our normal financial process; so that analysis is underway.”
The Air Force had planned to make a production decision on the tanker this month but the Milestone C decision has slipped until August. Delivery of the first 18 production planes had been scheduled to occur by August 2017 but the last of those aircraft won’t be delivered until January 2018 under the new schedule.
Muilenburg said that although the concurrency in the tanker program, which will complete development in about a year while building the initial production planes, does make for some challenges including schedule impacts, in the long-run it’s the right thing for the company, customer and shareholders.
The decision to delay a production decision and deliveries isn’t based on a new technical issue, Muilenburg said. Rather, it comes down to how to incorporate issues found in the ongoing flight-test program into aircraft that are in production, he said.
Still, that concurrency “will create pressure as we finish up development over the next year,” Muilenburg said.
The technical issue behind the new delay in the KC-46 is the same boom axial load issue discussed at Boeing’s investor day in early May, Muilenburg said. The company had tried a software fix that worked to a degree but wasn’t robust enough so now a hardware solution is being implemented that is “more robust for the long-run,” he said.
Even though there is a delay in receiving the initial production contracts, Muilenburg pointed out that production is proceeding apace. He said five aircraft are in flight-testing, seven are in final production, and eight are in the supply chain, bringing to 20 the number in the production system.
The Air Force’s planned buy is for 179 KC-46 tankers but Boeing believes the eventual run will top 400 aircraft to include the Air Force and other customers.
This is a “wide-body production program for decades and decades of support and training to follow,” Muilenburg said. “And that really is the value proposition for the company, and our shareholders.”