Boeing examining effects of potential reduction in 777 output

Boeing has announced that it is considering reducing its production numbers of the 777 model. Currently they are producing 8.3 aircraft a month and a proposed reduction will reduce this down to 7 planes a month. The 777 is a strategic source of cash and one of Boeing’s most profitable planes as it currently has a 20% cash margin. The potential reduction in output comes hot on the heels of Boeing posting narrower than predicted losses on the 787 Dreamliner and the company’s belief that this model can also generate cash and fill the void created by reduced 777 production.
The other scenario being considered by Boeing is the increase in production of the single-aisle 737, though the engine maker CFM has already voiced concerns over the increase in numbers required. While production slots are ‘sold out’ up until mid-2017 and Boeing’s Chief Executive, Dennis Muelenburg, has made it clear “The value of the 777 is holding up very well,” not all the subsequent production slots have been sold, causing Boeing to explore other possibilities. The intention for some time has been to shift production to the 777X in 2020, so any changes to production now would be aimed at cushioning the effect of a lack of 777 sales.
According to RBC analyst, Rob Stallard, Boeing has a lot of 777s to sell before switching to the 777X, adding that “Delta has got the word out there that pricing is soft and that has not made Boeing’s life easier” after Delta Air Lines revealed that prices for used 777s were falling. Muelenberg remained optimistic, confirming that Boeing had been carrying out “scenario planning” in relation to a rate reduction, adding that “we don’t see any scenario that would take us below seven a month.”
Boeing is currently relying on the 787 Dreamliner to begin generating a positive cash flow in the fourth quarter. Figures released on Wednesday indicated a loss on each 787 leaving the factory narrowing to about USD$15.5 million in the third quarter, which is smaller than the USD$20 million loss many analysts anticipated. Boeing has also raised its forecast for jet deliveries for the year from 750 – 755 to 755 – 760.