UBS: Boeing Is Behind In Its Cost-Cutting Targets

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Photo: webhamster via flickr

As Boeing begins to ramp up production on its 787 Dreamliner program, costs continue to weigh on one of the world’s largest aircraft manufacturers.In a note out to investors this morning, UBS’s David Strauss estimates the company will burn through $16 billion using comparable learning rates on the program, “$10 billion worse than we estimate is implied by BA’s guidance,” bringing into question the Boeing’s ability to be cash flow positive by 2015.

It cost Boeing some $242 million per 787 delivery during the first quarter of 2012, a figure the company hopes to more than halve by 2015 — to some $100 million.

To do that, the Chicago based firm will need to reduce costs by 24 per cent with each doubling of production — higher than the 16 per cent reductions it was able to achieve on the 777 program. At that pace, Boeing would only reduce costs to an estimated $150 million per jet by 2015.

Boeing has stated it hopes to get to a build rate of 10 787s per month by the end of 2013, well above the current 3.5 per month during the first three months of 2012.

On its first quarter conference call with investors, Boeing said it expected to start delivering planes without having to do additional modifications post productions by unit 60. At the end of the first quarter, Boeing had delivered just five 787s.

But UBS says it is possible that Boeing could hit its high targets.

“While thus far BA’s 787 learning has lagged, the move towards a mix of fewer change incorporation aircraft and less overhead allocation per aircraft beyond the first 100 ‘mini-block’ offers the potential for unit costs to step down at a steep rate,” Strauss says.

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