Boeing bucks military cuts to report profits rise

Boeing, one of the two companies that dominate the world commercial jet market, bucked higher commercial jet expenses and declining military sales to report first-quarter net profits up 38 per cent to $1.34bn.

The increase resulted mainly from a 21 per cent rise, to $15.4bn, in revenue at the commercial aircraft division. Boeing commercial aeroplanes, like Airbus, its European rival, are benefiting from a boom in commercial aircraft orders.

However, shares in the company fell 1.4 per cent to $151.19 on Wednesday following concerns about the costs of manufacturing the 787 wide-body jet.

An increase in the number of deliveries of the expensive-to-manufacture 787 by the Commercial Airplanes division drove the unit's margin down 1.3 points to 10.5 per cent. Profits from operations at the division nevertheless rose 8 per cent to $1.62bn.

Margins improved, by contrast, at the defence, space and security business, despite revenue declines because of falling US military spending. The division's profits from operations declined just 4 per cent to $743m, on a 12 per cent decline in revenues to $6.71bn. The operating margin improved 0.9 points to 11.1 per cent.

Earnings per share at $1.87 comfortably exceeded analysts' consensus forecast of $1.81. Overall revenues increased 8 per cent to $22.1bn.

Jim McNerney, chief executive, stressed on a call to analysts that the company's new aircraft, whose main selling point has been their improved fuel efficiency, also offered a range of other advantages. There have been concerns that airlines might cool on taking delivery of the aircraft because of recent months' sharp falls in oil prices.

"Our new technologically advanced airplanes also offer higher passenger and cargo revenue, increased residual values, a better overall passenger experience and greater range," Mr McNerney said.

Low fuel prices were also likely to encourage airlines to place new orders, McNerney said. "These remain very good times for our industry," he said.

However the company made no upward revision to its full-year earnings forecasts, which remain at a range between $8.10 and $8.30 per share. After modest falls in premarket trading, the shares fell further when executives discussed the mounting costs of manufacturing the 787.

The company said that deferred production costs for the aircraft, the accounting figure used to even out manufacturing costs over the product's lifetime, had risen by $793m to $27bn during the quarter, well ahead of the $25bn figure had been expected to reach this year.

"We continue to anticipate 787 deferred production to grow at similar levels for the next couple of quarters before seeing a healthy decline in the growth later in this year," Greg Smith, chief financial officer, said.

A range of businesses benefiting from high levels of commercial aircraft orders is investing heavily to meet strong worldwide demand for new, more fuel-efficient aircraft.

Boeing's commercial aeroplane deliveries for the quarter were up 14 per cent on last year's first quarter, to 184. However, the division captured a further 110 orders during the quarter - including 52 for the re-engined Boeing 737 Max narrow-body airliner. The backlog at the end of the quarter totalled 5,700 aircraft, worth $435bn.

The defence, space and security business suffered from declines in the Boeing military aircraft unit, with earnings and revenues down 21 per cent to $261m on a fall in sales to $2.74bn.

In the network and space systems unit, profits from operations fell only 1 per cent to $167m on revenues down 8 per cent, to $1.73bn. Profits from operations in the global services and support arm increased 13 per cent, to $315m, on revenues down 3 per cent to $2.23bn.

Many of the US's big military contractors are grappling with declines in spending resulting from across-the-board spending cuts and the winding-down of US military operations in Iraq and Afghanistan.

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