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Boeing poised to boost 737 production, analysts grow wary of demand ceiling

  • Boeing (NYSE:BA) is finding it hard to meet demand for its 737 aircraft; it now makes 42 each month, it has announced plans to increase production to 47 by 2017, and analysts expect it to announce plans to boost capacity further - but should it?
  • Airbus (OTCPK:EADSF, OTCPK:EADSY) is scheduled to deliver its first re-engined A320neo competitor to the 737 early in 2015, and Boeing may have to increase the build rate of its existing 737 just to keep up.
  • "The real problem is long-term," says Teal Group analyst Richard Aboulafia, noting the record-high output for single-aisle airplanes over several years, with no slowdown until both the A320neo and 737 MAX are in production - "a recipe for overcapacity by the end of the decade.”
  • Canaccord Genuity seconds the concerns, noting that as a general rule of thumb, many suppliers cite 100/month combined for both Boeing and Airbus as a natural limit and are concerned that anything more is unsustainable for more than a short time.
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Comments (5)
  • SoldHigh
    , contributor
    Comments (1013) | Send Message
     
    Sounds good for BA - hope they keep the quality high
    20 Aug 2014, 07:12 PM Reply Like
  • combie
    , contributor
    Comments (95) | Send Message
     
    The real concern is the supply chain, it is fragile now and last time Boeing tried to increase the 737 rate when they should not have they collapsed under a weak supply chain and had to shut down production for 3 months.
    They have the exact same issues now, plus Boeing has pissed off most all their main suppliers with their big "manage by MBA" leaders forcing all suppliers to cut from 15% to 20% no matter if they are making money or not!
    Boeing just said you will drop your price or we will bid out your work.
    20 Aug 2014, 09:45 PM Reply Like
  • kata
    , contributor
    Comments (842) | Send Message
     
    combie, that doesn't make any sense. No large manufacturer of anything doesn't have long term vendors and any manufacturer knows you don't want to squeeze your partners/suppliers out of business. That helps no one. And the whole story of overcapacity doesn't make any sense either.
    21 Aug 2014, 01:59 AM Reply Like
  • alpine
    , contributor
    Comments (1583) | Send Message
     
    I too agree why there should be overcapacity for this single-aisle plane models from both manufacturers, as in "several years", the entire current installed base of '000s of both 737 and 320 planes will be due for replacement.

     

    If you want direct evidence of this, one only needs to have a close look at both these model planes at airports in Asia, Europe alone and you will come away thinking why are these relatively young planes from the likes of Easyjet, Ryanair, AirAsia, Tiger, Silkair already looking so old? I feel part of the reason is that the low cost carriers really overwork these planes, and they will all need to be replaced too, so the replacement market may well kick in just as the neos and maxes arrive on the scene.
    21 Aug 2014, 03:49 AM Reply Like
  • GarryGR
    , contributor
    Comments (240) | Send Message
     
    The driver for increased production is demand, as well as increased profits. But there's no increase in profits / revenue if you increase production but it winds up in inventory. But, an order for a 737 placed today won't be delivered for a number of years and airlines don't want to wait that long. Unless there's another economic crisis / collapse, there isn't likely to be any over capacity for some years to come.
    23 Aug 2014, 04:53 AM Reply Like
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