) -- Has
won back Wall Street?
The aircraft maker said Thursday that the long-awaited 787 will fly this year and be delivered next year, 2 1/2 years late. Despite the delays and previous widely expressed concerns that the program would face losses as a result, Boeing declared the 787 "is not in a forward loss position."
At midday, Boeing shares were rising 9.4% to $52.32. "We see significant uncertainty removed from the shares," wrote Standard & Poor's analyst Richard Tortoriello, who upgraded the company to buy from hold and set a target price of $60.
A conference call with analysts and reporters Thursday morning had two key moments. First, CFO James Bell clarified his remarks on the July earnings call, when he said that taking an unspecified delay in order to reinforce stress points where the 787 wings are connected to the body "would put pressure on profitability." That thought spooked Wall Street. Now, Bell says, the extent of the delay is known and the profit outlook remains positive.
Additionally, asked why analysts should have any confidence in yet another revised 787 schedule, Pat Shanahan, general manager of airplane programs, seemed convincing.
"Time has passed since June and we continue to mature the airplane so there is less uncertainty around the performance of the systems," Shanahan said. "We really are seeing a lot of maturity from the airplanes themselves as they're out there testing. If you talk to the pilots today they'll tell you that the airplanes are ready to fly."
Boeing says it will take a third quarter non-cash charge of $2.5 billion or $2.21 a share because it has concluded it cannot sell the first three test-flight airplanes and therefore will reclassify them from inventory to research and development expense. The move will not impact 2009 cash flows.
Bell said the first three airplanes have been modified too many times to sell, but test airplanes four through six will likely find buyers "in the VIP market." Asked whether taking $2.5 billion in charges now would have a "positive impact" going forward, Bell responded, "I would agree with that."
"The charge is rather eye-watering, but we think it is better to take the pain now, remove the overhang and get on with the program," wrote Macquarie Securities analyst Rob Stallard, who reiterated an outperform rating on the shares. He cautioned, however, that "the real challenge for Boeing is to actually stick to this revised 787 timetable -- something it has been unable to do in the past."
Boeing also said Thursday that its 2013 production schedule calls for 10 planes a month, which is significant because the company can produce only seven a month at its existing Everett line. The schedule offers further assurance that Boeing will establish a second production line.
Scott Carson, CEO of Boeing Commercial Aircraft, said Boeing recently began the permitting process in Charleston, S.C., "to assure we did not have an administrative issue that stood in the way of the decision," and now will evaluate the relative merits of Charleston and Everett (Wash.) sites.
-- Written by Ted Reed in Charlotte, N.C.