Analyst argues Boeing will be forced to slow 777 line starting in 2018

Boeing may be forced to slow the 777 production line due to insufficient orders, despite recent upgrades designed to boost efficiency and win more buyers.

That's the view of Doug Harned, senior analyst for Sanford C. Bernstein & Co., in a report released Friday.

"Sales of the 777-300ER appear challenging in later years without significant price reductions (even after recent performance improvement announcements)," he wrote. "We now have 2018 production at 88 (down from 100 in 2017) and 2019 production at 72."

That would be roughly 7.3 and six a month, respectively.

The question of whether or not Boeing will be forced to slow 777 production due to an order shortfall has been disputed for months.

Boeing executives have consistently said they'll be able to win the 50 to 60 orders annually they need to keep the current 777 model at 8.3 monthly until 2020, when the re-engined 777X starts to deliver. Boeing currently has unfilled orders for 226 model 777 300 ERs, and 46 freighter versions of the 777.

In an email Friday, Boeing spokesman Paul Bergman expressed continued optimism.

"We're sold out on 777s through 2015—and 2016 is looking good," he wrote. "There's also a lot of activity in the order pipeline that should solidify things for 2017 and 2018. With the value proposition the 777 brings our customers, we're confident we'll get there."

Last year Boeing succeeded in winning sufficient orders to keep the production line open, with 63 orders for current-generation 777s.

But so far in the first two months of 2015, Boeing has won only five firm orders for 777s, with another three "commitments," which are not yet firm orders.

The five were from Korean Airlines, for freighters, while Swiss International Air Lines on Thursday announced plans to purchase three additional 777-300ER.

The 777 300ER lists at $330 million, which means that dropping production by two planes per month could cost Boeing $7 billion or so in annual cash flow.

This week Boeing announced a "performance improvement package," for the 777, mostly aerodynamic tweaks and weight reductions, intended to shave 2 percent off fuel burn and bring in more orders.

There is one aspect of Harned's analysis that raised my eyebrows: He seems to suggest Boeing may need to slow 777-300ER production in 2018-19 partly because the planes will be produced on the same line as 777X. I don't think there will be two lines. Boeing is planning to start the 777X on what is now the 787 surge line.

"This will allow us to focus on a smooth production transition," Boeing's Berman wrote about the 787 surge-to-777X line plan. "This line will be used for about three years and then we will transition 777X production to the main 777 production line in the 40-25 building."

Harned did not respond to a request for clarification.

(Steve Wilhelm - Puget Sound Business Journal)