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Boeing Sees Decision on 737 Jet Replacement Sliding ‘Toward End of Year’

Boeing Co. (BA) said its decision on a new narrow-body jet now may come “toward the end of the year,” pushing back an earlier target of mid-2011, as it considers a plane that’s only “slightly” bigger than the 737.

Airlines have been briefed on Boeing’s plans and don’t need a verdict in the coming weeks on the successor to the 737, the world’s most widely flown jetliner, Jim Albaugh, the commercial airplanes chief, said today in a presentation to investors.

“If you’re holding your breath for the Paris Air Show, I’m not going to say we’re not going to make an announcement, but I’d be very surprised if we did,” Albaugh said, referring to the biennial industry event next month that attracts the industry’s top executives.

His timeline differed from the plan for a decision by June, which was laid out in a March 1 interview by Mike Bair, who leads the team studying a new single-aisle plane. Chicago-based Boeing competes with Airbus SAS, which is putting new engines on its A320 aircraft before designing a successor.

Boeing may re-equip the 737 with improved engines if plans aren’t in place for a replacement aircraft by early 2012, Chief Executive Officer James McNerney said on a webcast of the investor conference in Seattle, where the company’s commercial operations are based.

Engine Option?

“We will retain the ability to re-engine if this new narrow-body doesn’t come together over the next nine months or so,” McNerney said. A re-engined 737 could be ready by 2016, Albaugh said. That’s the year after Airbus’s A320neo model with new engines is scheduled to enter commercial service.

Boeing executives said they are still leaning toward developing a new plane instead. That jet “may be slightly bigger but not a huge step-change bigger” than the current 737, McNerney said.

Depending on the model, typical configurations for the 737 can carry from 110 to 180 passengers, according to Boeing’s website. The company eventually may offer a jet for the larger end of the narrow-body market segment, McNerney said. The 757, which carries as many as 280 passengers, went out of production in 2005.

“The first order of business is to replace the heart of the market,” McNerney said. Smaller jets like the 737 and A320 form the backbone of the world’s airline fleet.

Fuel-Efficient

A new plane built from lighter materials and using updated engines would be 20 percent more fuel-efficient than current models, helping attract airlines seeking to cut costs. It also wouldn’t be available until perhaps 2019, Boeing has said.

Boeing fell 71 cents to $75.57 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 16 percent this year.

McNerney said Boeing will deliver the 787 Dreamliner and new 747-8 jumbo jet to the first customers “in the months ahead” after numerous delays to each program.

The Dreamliner, more than three years behind schedule, has now completed 96 percent of the testing required for certification by the U.S. Federal Aviation Administration, he said. The final tests -- to measure function and reliability and extended-operations -- will start early next month, said Scott Fancher, the program chief.

Delivery and Testing

The 747-8 is due to be delivered in mid-2011 yet also won’t start those tests until June, Boeing said. The plane, a derivative of the 41-year-old jumbo and the biggest plane Boeing has ever built, is 90 percent of the way through its tests for FAA certification, Albaugh said.

Analysts including Cowen & Co.’s Cai Von Rumohr and JPMorgan Chase & Co.’s Joseph Nadol have said the 747-8 may miss its target as Boeing works through problems uncovered during testing. Engineers still have to resolve one “issue” with the FAA that involves the jet’s flight-management software, Albaugh said.

The company will have built 40 Dreamliners before the first one is delivered and it will “take a bit” to alter those planes in response to FAA requirements and to get to the point where deliveries match output, executives said. Albaugh said he “took the pencils away from the engineers” to limit last- minute changes to the plane.

The company is still struggling with out-of-sequence work by suppliers in the Dreamliner’s mid-body section, Fancher said. Boeing created a new manufacturing process for the plane that relies on partners to build completed sections and ship them to Boeing for final assembly.

Once Dreamliner deliveries begin, there will be a “significant improvement” in cash flow, said Chief Financial Officer James Bell. He said he’s targeting net income that’s 7 percent of sales, though “it will take a little time.” Last year’s net margin was 5.1 percent.

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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