Wednesday, January 18, 2017

Boeing can't build 737s fast enough, but a veteran analyst says planned increases are unlikely

AirInsight analyst Addison Schonland says low fuel costs and looming layoffs mean Boeing is unlikely to speed up its production line as planned.

An aerospace analyst predicts Boeing and Airbus are unlikely to increase production of their popular single-aisle jets – the 737 and A321neo, respectively – as they previously promised.

Amid growing signs of an aerospace downturn, AirInsight analyst Addison Schonland said he thinks Boeing will not increase production because aircraft orders and the order backlog have peaked and he expects fuel prices to remain low.

Cheap fuel will allow airlines to delay deliveries of more fuel efficient aircraft they ordered when oil prices were much higher.

The jet-makers will respond by keeping production steady at current levels, Schonland said.

Boeing CEO Dennis Muilenburg has vowed Boeing's commercial airplane unit will boost 737 production from 42 per month to 47 in 2017, to 52 per month in 2018 and to 57 per month by 2019, all in response to strong demand from airline customers worldwide.

Chicago-based Boeing had a backlog of 4,452 orders for 737 aircraft at the end of last week. All are made at Boeing's Renton plant.

Schonland said he see orders softening and the backlog peaking.

"Therefore, we cannot see rate 50 or 60 coming any time soon, if ever," Schonland said. "Moreover, both Airbus and Boeing are planning layoffs. Can layoffs come when rate increases are being planned? We don't think so."

The scenario described by Schonland is unlikely, Boeing spokesman Adam Tischler said.

"The challenge we have is building 737s at a high enough rate because the market is so robust," he said.

Boeing didn't even reduce its 737 production rate during the Great Recession, Tischler said.

"We actually increased the rate from 28 to 31 planes a month in January 2008, then to 31.5 aircraft a month in September 2009," he said. "We have learned to manage very carefully. The emphasis has been on stability and disciplined skyline management to get through business cycles and unplanned shocks."

(Andrew McIntosh - Puget Sound Business Journal)

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