BA - Boeing: Chief Executive McNerney Confirms; China to Compete

By CrossProfit

In an all encompassing interview, Chief Executive Jim McNerney confirmed what some at CrossProfit had suspected and documented in this article. To quote McNerney; "…competition, I think is inevitable. China has market size, capability and experience…ten years ago it was unthinkable…China is supply chain capable for the automotive industry…China could do the same for the aerospace industry"

Reading in between the lines, we get the impression that McNerney is announcing to the world that this is a given and not a ‘what if’ situation. The time frame is ‘within ten years’. Analyzing the precise language used, it appears that the current duopoly buddies are positioning to partner with the new competitor!  Both view the new unnamed competitor as an ally providing strategic and manufacturing synergies that will help dominate the market.

The gist of the lengthy interview is; the military division will have its push-ups and trenches over the next five years but will maintain current levels, commercial aircraft is in fast track growth mode for the next decade and the B787 Dreamliner is the high flyer. Margins are as high as they can go (11%) and any future earnings growth will be coupled with revenue growth. The next leg up in earnings (25%) will occur in 2008 as Boeing begins to deliver the Dreamliner.

After that, earnings will glide along with production capability. Boeing is preparing to build and deliver the Dreamliner in step with Japanese style ‘just in time’ and quick turn around methods. This will enable Boeing to lower its overhead and ramp up or jettison output in line with customer demand. The Dreamliner is assembled in the U.S. like a model aircraft hobby kit. Parts come from Japan, Australia, China, Italy and France (the nose is from the US) and can be glued together in less than three weeks.

From the way McNerney was talking, the next model just might be assembled in China. Who says that the B797 Global Trotter stands for Boeing? Maybe the "B" stands for Beijing.

Disclosure: No conflicts.