Boeing Cuts 747 Output Rate as Demand Drops for Big Jets
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Boeing Co. (BA) cut the production rate on the 747-8 jumbo jet, its biggest and most-expensive model, citing dwindling demand for the largest passenger planes and freighters.
Monthly output will drop by early 2014 to 1.75 aircraft from two now, Boeing said today in a statement. The Chicago- based company said the change in tempo, to 21 jets a year from 24, isn’t expected to have a significant financial impact.
Boeing’s move follows through on its previous warnings that production rates might not be sustainable amid weakness in the global air-cargo market. Four-engine planes such as the 747-8 and the Airbus SAS (EAD) A380 also have seen their popularity dwindle as airlines opt for the biggest twin-engine models instead.
“The passenger variant’s got five years on the market at most,” said Richard Aboulafia, vice president of Teal Group, a Fairfax, Virginia-based aerospace forecaster that has done work for Boeing. “It’s part of a broader problem, which is that the market for large quad jets is small, and getting smaller.”
Boeing has won just 110 orders for the 747-8, of which only 40 are for the passenger version, since it began offering the plane in 2005. During that time, carriers have placed orders for more than 700 777s, the company’s largest twin-engine jet. Those models are more fuel-efficient than those with four engines.
The 747-8 is Boeing’s costliest commercial plane, with list prices of $351.4 million for the passenger version and $352 million for the freighter. It entered service in 2011.
Boeing said it will continue to monitor market conditions for jumbo jets and their effect on production rates. The global air-cargo market should resume growing at long-term average rates in 2014, Boeing said in its statement.
“Boeing has noted soft demand in the freighter market for some time, and if there is no pick up in orders we could see further cuts to the 747-8 production rate,” wrote Rob Stallard, a London-based analyst at RBC Capital Markets who has a neutral rating on the stock.
The shares gained 0.8 percent to $86.80 at 11 a.m. in New York. The Federal Aviation Administration is ready to clear Boeing’s proposed fix for the 787 Dreamliner’s batteries and end that jet’s grounding, according to people familiar with the matter.
Twin-engine models like the Dreamliner able to fly longer routes have eroded the need for four-engine planes in serving intercontinental markets. The 787 has won 890 orders since going on sale in 2004.
Boeing’s promise to come out with a successor to its best- selling 777, the 777X, by the end of the decade also threatens to choke off any potential interest in the 747-8, Teal Group’s Aboulafia said.
While predicting few if any further orders for the 747-8 Intercontinental, the passenger version, Aboulafia said the freighter should do better, and that Boeing would be smart to postpone any decisions until the cargo market recovers.
“This is the worst time to make a long-term decision about the plane, because for the last two years, we’ve had really bad cargo numbers,” he said.
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