Boeing Chasing Growth Weighs 43% Output Boost for 737 PlanesJulie Johnsson
Boeing Co. is considering a longer-term production boost of as much as 43 percent for its 737 jet, a step toward generating more cash from the world’s most widely flown airliner.
The assembly tempo for the 737 has quickened as Boeing whittles down a backlog of 4,201 orders for the 737, which competes against Airbus Group NV’s A320 in the biggest segment of the global airline market. Airbus is studying a 60-a-month pace for the A320, and Boeing said Tuesday it may follow suit if there’s enough demand after two other planned rate increases.
Gaining more from its factories and development teams is a focus at Chicago-based Boeing as the company works to convert a record order haul into hard cash. Production pace is critical for Boeing, which collects 60 percent of a new jet’s price upon delivery.
“Our strategy is to deliver an unprecedented backlog to customers profitably,” Boeing Chief Executive Officer Jim McNerney, said during an investor day webcast Tuesday.
Boeing shares were little changed Tuesday. The stock’s 12 percent increase this year is fourth best among the 30 members of the Dow Jones Industrial Average Index, and fifth highest of the 65 members of the Standard and Poor’s 500 Industrials Index.
McNerney said he remains confident that there’s ample demand for Boeing’s planes such as the 737 and 787, which are largely sold out this decade. Still, some investors are starting to worry that order activity may be tapering off after years of growth, Robert Stallard, a New York-based analyst with RBC Capital Markets, wrote in a note to clients Tuesday.
“Our sense is that investors have valid questions over whether it makes sense to keep raising” output rates, Stallard said. He rates Boeing the equivalent of hold.
Investors also remain focused on Boeing’s potential to reap more than $9 billion from operations this year. The manufacturer got off to a slow start with just $88 million in the first quarter, the lowest amount for the quarter since 2011, according to data compiled by George Ferguson, aerospace analyst with Bloomberg Intelligence.
Cash generation should increase as the year progresses and continue to climb in 2016 as Boeing raises the output of the 787 Dreamliners 20 percent to 12 a month, Chief Financial Officer Greg Smith said.
The company may raise the measure used to estimate the profit or losses it will earn over the life of the 787 program by late 2016 or early 2017, Smith said.
Boeing anticipated sales of 1,300 Dreamliners as of March 31, and had 1,105 cumulative firm orders for the aircraft, according to an April 22 regulatory filing.
The company is focusing on better factory processes to lower the construction costs of each Dreamliner and ultimately pull the program into the black.
Boeing also is working to increase 737 production to 47 jets a month in 2017, and 52 jets a month the next year, as it introduces an upgraded model of the single-aisle jetliner. Production of the first 737 Max should begin later this month, when the planemaker loads the first wing spar into its factory, Conner said.
“We’re doing that in exactly the same footprint as when we were doing 21 a month,” Conner said. “That’s a huge statement about efficiency.”
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