B737 Line May Be Scaled Back, Despite Planemaker's Assertions
Otherwise
In these difficult economic times,
it's become something of a sport to openly question and contradict
assertions of positive news from corporations... from the banking
industry, to aerospace. With that in mind, it should surprise no
one to hear analysts are less-than-optimistic about the chances
Boeing won't drastically slash production of its popular 737
narrowbody airliner, despite the planemaker's statements to the
contrary.
As ANN reported last week, Boeing announced
drastic cutbacks in 2010 production numbers for its profitable
widebody lines, including the 777. The planemaker said the changes
were due to "significant deterioration in the business
environment for airlines and cargo operators driven by
unprecedented global economic conditions."
Somewhat surprisingly, at the same time Boeing said it planned
to hold production rates for its 737 line at current levels. That
statement was met with raised eyebrows from several analysts.
"While Boeing is holding its 737 rate steady for now, we believe
a 30 percent to 40 percent cut is necessary," wrote UBS aerospace
analyst David Strauss Monday, reports The Chicago Tribune.
That sentiment was echoed by Cowen and Co. analyst Cai von
Rumohr, who downgraded Boeing stock to "underperform" and believes
the 737 line "is vulnerable." Von Rumohr notes despite healthy
order backlogs for both the 737 and its Airbus rival, the A320
Family, a record 177 relatively new single-aisle planes currently
sit idle in airplane boneyards, pickled due to capacity cuts.
Noted analyst Richard Aboulafia of the Teal Group points out
narrowbody lease rates have also tumbled by about one-third, which
is usually a sign production cuts are imminent... though that
hasn't happened yet.
"That's weird," Aboulafia said. "Normally it all falls in
tandem: lease rates on the one hand, production rates on the
other... Manufacturers seem willing to accept lower prices for
their goods. You're hearing that they're willing to renegotiate, do
what's necessary to keep that cash flowing in the door."
Boeing spokesperson Vicki Ray expressed cautious optimism about
737 production rates, saying the planemaker has over 2,200 aircraft
on firm backorder.
She then hedged her bets somewhat.
"We have no plans to reduce our 737 production rates at this
time," Ray said. "We will continue to analyze our production rates
as is prudent for conditions of the market."