Boeing reviewing production, no 737 cuts seen
CHICAGO - Boeing Co. is conducting a monthly review of its commercial aircraft production after last week opting to trim output of some models next year, a senior executive said Monday.
CHICAGO – Boeing Co. is conducting a monthly review of its commercial aircraft production after last week opting to trim output of some models next year, a senior executive said Monday.
Randy Tinseth, marketing vice president for the company’s commercial unit, said in an interview that Boeing is “looking at customers in an objective way” to understand ahead of time which airlines may need support to fund new deliveries.
The analysis extends to which customers may be too weak financially to expand fleets or replace ageing aircraft types, Tinseth said.
Boeing and arch-rival Airbus have trimmed production as they work through record backlogs. Some airlines and leasing companies are seeking to defer, or even cancel, orders as passenger and cargo traffic weakens and finance options diminish. Airbus is a unit of European Aeronautic Defense & Space Co. (EADSY).
Tinseth said Boeing retains its longer-term forecast for world traffic growth and aircraft demand.
This includes global passenger traffic growing at around 5% a year. About 80% of growth comes from economic expansion, with the balance from “liberalization” of government regulations covering airlines and lower airline operating costs, Tinseth said.
The executive spoke earlier at an event in Chicago to mark the arrival of the first new Boeing 737-800’s for American Airlines, a unit of AMR Corp. (AMR).
Boeing last week said it would cut annual production of its 777 aircraft by nearly one-third, beginning in mid-2010. Tinseth said Boeing has no plans at present to trim production on the 737.
Boeing shares recently traded at $37.41, down $1.74, or 4.4%, after Cowen & Company on Monday cut its rating on the stock to underperform from neutral, believing that Boeing faces a long downcycle in aircraft orders.
Boeing, which also issued a profit warning last week, has conceded that margins are falling on new aircraft deliveries.
Analyst Cai von Ruhmohr said this downcycle could be worse than the typical downturn, because worldwide air traffic has fallen so sharply this year.
Boeing retains a record backlog, with orders for more than 3,500 planes, and has said it believes its customers have adequate financing through the end of 2009.
Its finance unit is prepared to contribute up to $2 billion to help customers bankroll their purchases, and is working to expand non-bank funding sources.
Standard & Poor’s said last week that it may cut Boeing’s credit rating, and that of its financing business, by one notch as Boeing not only faces the need to back more commercial aircraft purchases, but down the road could see cuts to its defense programs.