Like a publisher that can’t print a bestselling novel fast enough, Boeing (BA) is finding it hard to meet demand for its staple aircraft, the 737. The company currently makes 42 737s each month; it has announced plans to increase that production to 47 by 2017. Now analysts expect it to announce plans to boost capacity further. The question is: Should it?
Boeing and Airbus (AIR:FP) are racing to deliver the next generations of their bread-and-butter models, the 737 and A320, both of which will offer greater fuel efficiency over the models they’re replacing. The first A320neo (new engine option) is scheduled for delivery in late 2015, nearly two years before Southwest Airlines (LUV) will get its first 737 MAX, the replacement for the current 737 family.
That pressures Boeing to cut the wait for its new 737s, which can stretch to years for some airlines, says Teal Group analyst Richard Aboulafia. The 737 program represents about 75 percent of Boeing’s commercial aircraft business, and “we’re seeing more pressure to go up in production rates than anything,” Boeing’s chief financial officer, Greg Smith, said during an Aug. 14 investor conference. “We’ll be addressing that here in the next couple of months to come.” Some analysts expect that Chicago-based Boeing may decide to ramp up to producing five dozen 737s per month over time.
“The real problem is long-term,” Aboulafia says, noting the record-high output for single-aisle airplanes over several years, with no slowdown until both the A320neo and MAX are in production. “Then you’ll have Airbus try to exploit a first-mover advantage and Boeing working hard to ramp up faster and catch up. This all sounds like a recipe for overcapacity by the end of the decade.”
A Boeing spokesman, Doug Alder Jr., declined to comment on Tuesday regarding future 737 production rates or factory capacity. Boeing has collected 550 orders for the 737 so far this year, and it has delivered 278, with an overall backlog of more than 5,200 airplanes.
Boeing’s 737 assembly plant in Renton, Wash., south of Seattle, could accommodate as many as 63 planes per month, but support facilities would need to be expanded to handle much beyond 52, says Scott Hamilton, an aerospace analyst with Leeham Co. The most widely expected increase—to 52 per month—would not strain the current system, in which Spirit AeroSystems Holdings (SPR) builds the 737 fuselage in Kansas and ships them to Renton. Going to 60 or higher would be more challenging, both for Boeing and suppliers, Aboulafia says. Hamilton says Boeing may decide to open a second 737 fuselage line to handle the increase.
Nearly 300 airlines and leasing firms have bought the 737, the top-selling aircraft model in commercial aviation history. The 737 MAX has collected more than 2,100 orders.