Thursday, October 27, 2016

Boeing warns 777 rate could drop to 3.5 per month

Boeing warned on 26 October that 777 production rates could further decline to effectively as low as 3.5 per month by late next year or early 2018, unless ongoing sales efforts lead to firm orders over the next few months.

Boeing still believes the sales outlook is healthy enough that a further production cut will not be necessary, but chairman, president and chief executive Dennis Muilenburg described to analysts on a third quarter earnings call on 26 October a worst-case scenario for one of the company’s most profitable programs.

Boeing has already announced plans to reduce 777 output from 8.3 per month to seven monthly next year. As the first 777-9 enters assembly in 2018, the effect of building test aircraft will lower output to an effective rate of to 5.5 per month in 2018. Another reduction of one or two per month may be necessary by late 2017, Muilenburg says.

Lowering the monthly to 3.5 represents a worst-case scenario. If Boeing is unable to sell another 777 for the next two years, more than 90% of available production slots in 2019 would be sold out at the 3.5 per month rate, Muilenburg says.

After setting a string of annual sales records from 2012 to 2014, demand for Boeing’s commercial aircraft has waned during the last two years. Airline customers are most “hesitant” about buying wide-body aircraft in the current market climate, says Muilenburg, who cites factors such as lower global economic output, geopolitical instability and less demand for sending cargo by air.

Boeing still expects yearly deliveries to rise to more than 900 commercial aircraft by 2019. That objective remains possible even if Boeing further reduces 777 output to 3.5 per month in 2018, as long as other planned rate increases continue.

Excluding another 777 rate cut, planned production rates today would have Boeing producing 954 aircraft in 2019, including announced plans to raise monthly output on the 737 to 57 and on the 787 to 14. Boeing also plans to continue building 2.5 767s and 0.5 747s per month in 2019.

The 777 production rate has been scrutinized for several years as Boeing manages a transition to a re-winged and re-engined 777X family in 2020. “We’re confident we’re going to be able to work our way through that in a profitable and effective manner,” Muilenburg says.

Building 777s at a rate of 3.5 per month, if necessary, will not affect an effective transition to the re-engined and re-winged 777X family in 2020.

Such a reduction in output, however, would have a negative impact on operating margins as Boeing attempts to raise profits before special items above 15% on an annual basis by the end of the decade, Muilenburg says. But Boeing would attempt to offset that impact by other means, such as lowering costs, he adds.

(Stephen Trimble - FlightGlobal News)

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