Following a weak fourth quarter earnings report and an even weaker outlook on profits for 2011, Boeing Co. (NYSE: BA) CEO Jim McNerney said on the company’s conference call that Boeing could replace its best-selling 737 aircraft, rather than update the plane. The new plane would be available in 2020. Does anyone believe that?

After no fewer than seven official delays and a couple of unofficial ones, Boeing plans to deliver an initial batch of 787 Dreamliners in the second half of this year. Combined with deliveries of an upgraded 747-8, the company expects to deliver 25-40 of the new models in 2011. By the time the deliveries are made, both airplanes will be at least three years behind schedule. All told, the company expects to deliver 485-500 new commercial aircraft this year, up from 462 in 2010.

Boeing is also wary of US and foreign government cuts to defense spending because the company gets about half its revenue from its defense and space division. And then, if recent history is any guide, it’s not a lead-pipe cinch that Boeing will in fact deliver either the 787 or the 747-8 as planned.

Even if the 787 and the 747-8 do go out the door on time, Boeing expects EPS of $3.80-$4.00 for 2011, including pension expense of $0.58/share, which represents the increase to the company’s pension contribution between 2010 and 2011. The company expects margins of 8.5%-9%, compared with 9.4% margins in 2010. In the fourth quarter, operating margins were a weak 7.7%, a drop of more than 3% from the same period a year ago.

Boeing’s margin on any 787 it delivers in 2011 will be zero, according to the company’s CFO, but that Boeing still expects to make a profit on the project over the long haul.

Airline industry website flightglobal.com posted a drawing from a patent application filed in August, showing the interior of what could be a replacement for the 737, which airplane fans have dubbed the 797. The distinctive features of the drawing are the ovoid cross-section of the fuselage, which makes the cabin wider than it is tall, and the fact that the fuselage is made of composite material, like the 787. According to a report on website mynorthwest.com a double-aisle, narrow body plane is a design that Southwest Airlines Co. (NYSE: LUV) “has  been begging for.”

Boeing’s main competitor, EADS, makers of the Airbus, is already delivering first units of its A320neo plane, a direct rival to the 737 with a new, more fuel-efficient engine.

Boeing has said that just strapping a new engine on the 737 is not what its customers want. If the company decides to build a 797, when should Southwest and other carriers expect to see the deliveries? Boeing says 2020. The reality could be far different.

Paul Ausick

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