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Boeing Will Return Cash, Citing Lower R&D Costs

Boeing (BA) sounded confident about its ongoing air war with Airbus Wednesday, saying it can return most cash to shareholders because it has "better planes" than its European archrival.

The U.S. aerospace giant hopes to make a deal with British Airways, even though the U.K. carrier has already ordered 18 of Airbus' A350-1000 planes.

"That game's not over yet. Our intention is to win it," said Ray Conner, commercial airplane division chief, at Boeing's annual investors conference, held for the first time at its new Charleston, S.C., facilities.

Labor unions strongly oppose Boeing's decision to expand production to South Carolina. The National Labor Relations Board tried to shut down the site — a move hotly contested by business groups and Republicans — until Boeing settled in 2011.

South Carolina is a right-to-work state, which means workers aren't required to join the unions that negotiate on their behalf. Unions dominate Boeing's facilities in the Seattle area, pushing up operating costs and crippling production during strikes.

Internal Competition

CEO Jim McNerney said the company's focus on negotiating the most cost-efficient deals with various suppliers and ability to set up production in less expensive locations give it an edge.

"Now that we have internal competition, we're going to get much better deals — much better deals," McNerney told analysts, according to the Charleston-based Post and Courier.

Meanwhile, Boeing hailed "high and still growing" interest for its 777X wide-body jet. The next-generation wide-body will come in two varieties: an 8X that will use 20% less fuel and has a larger range than the current 777-300ER and the 9X, which can carry 40 to 50 more passengers than the current model.

The 777Xs will feature wings made from lighter-weight composite plastic vs. aluminum. The engines will also be more efficient, saving fuel, airlines' largest expense. Boeing believes the 777X project will give it a five-year head start over Airbus in making a similar plane.

Boeing and Airbus will likely tout big new jet orders at the Paris Air Show on June 17-23.

Shareholder Rewards

McNerney said Boeing aims to return 80% of its free cash flow to shareholders via dividends and share buybacks. The company is reducing R&D expenses "because we have better planes" than Airbus.

Shares hit a five-year intraday high of 99.48, but closed down nearly 1% at 97.93 on the stock market as fears of a Federal Reserve policy shift spooked investors overall. Boeing shares, however, are up 30% since the start of the year.

Boeing expects the 777X to debut at the end of the decade, but hasn't received board approval to begin production.

The company is also working on a larger 787 Dreamliner that it hopes to debut by year-end.

Boeing is mulling ramping up 787 and 737 production above the current goals of 10 a month and 42 a month.

Boeing has a history of falling behind schedule on delivering planes. Its 787 Dreamliner was delivered three years behind schedule. The FAA grounded the cutting-edge jet in January for problems with its lithium-ion batteries. Just this week United Airlines (UAL) completed the first commercial Dreamliner flight since that action.

The Aerospace/Defense group is ranked No. 45 out of the 197 industries that IBD tracks.