The recent hike in 737 production announced by Boeing Co. on Thursday has raised the scepticism of analysts and industry watchers. Boeing said its 737 production hike would involve the increase in production of its single-aisle 737 jet jetliner at its Renton plant to record levels in 2018.
The decision over the 737 production increase came as the company is seeking to keep up with current demands and boost its market share, in competition with rival Airbus Group, reports the Wall Street Journal.
The hike in 737 production would reportedly involve going from 42 to 52 jets in 2018.
According to 24/7 Wall St, even as Boeing announced the increase months ago, with the company unconcerned about overproduction, the 737 production still continues to shock experts.
Boeing would now be delivering 620 single-aisle jets a year.
Combined with plans for production of the twin-aisle aircraft like its 777 and 787 Dreamliner, it would entail building around 900 jetliners a year. In 2013, 648 planes are built, while this year the company has produced as many as 725.
Of course, positive reception came from the assembly plant in Renton, Wash. Because of the rise in 737 production, Boeing employed about 6,000 production workers, according to a 2012 count by the last state government.
The workers have reportedly been building 35 of the 737s per month. Now, with 42 planes targeted, the number of workers has most likely risen.
This remarkable rise in the production of 737s "definitely means both job security and ... more jobs for Renton and the Puget Sound," said Boeing vice president, Bev Wyse, who runs the Renton assembly plant.
Boeing's sales staff also welcomed the 737 production hike with open arms as they can now take orders for another 60 planes a year.
Orders for new jetliners have been pouring in for Airbus and Boeing since carriers from developed locations such as the U.S. and Europe are replacing aging fleets. Meanwhile, Asian and Latin American airlines are also expanding, adding to the orders. Since 2011, Boeing and Airbus have been securing around 2,000 net new orders annually.
The amount of orders primarily boosted the decision over Boeing's hike in 737 production.
Both Airbus and Boeing reportedly expect the market to continue booming. Boeing's current projections include a global demand for 25,680 single-aisle aircraft over the next 20 years, while Airbus estimates their numbers to be about 22,000.
The 737 production decision does not come without risks though.
It will require precision execution of a plan which involves hundreds of global suppliers, according to the Seattle Times.
Ken, an analyst at Canaccord Genuity, said that many suppliers are concerned that "anything above combined global production of 100 single-aisle jets a month is unsustainable for more than a short period of time."
Meanwhile, leasing companies' executives, who are part of those which account for around 40% of all commercial aircraft orders, have warned that the period of record demand could soon end. This is reportedly because leasing companies prefer the scarcity of jetliners so their rental rates to airlines will be strengthened.
However, the bigger problem is that the company would not be able to sell 777s with the current production rates until the revamped 777X shows up.
If Boeing currently produce 100 777s a year and orders are dropped, the company's cash flow will be hit hard.
According to some analysts, Boeing executives that the 737 production boost will be followed by investor confidence since the rise in 737 production signals the company's ability to generate cash flow even by the end of the decade.
They added that soaring 737 production may leave manufacturers vulnerable if a major shock were to happen, like the September 2001 terrorist attacks and the 2003 outbreak of severe acute respiratory syndrome, bringing a huge drop in air travel of several regions.
With the 737 production hike decision, investors either go with Boeing executives into believing that orders will not drop, or they believe it is still too soon to make a decision, leaving them to just wait and see.
This article is copyrighted by Travelers Today, the travel news leader
