[Avionics Today 01-27-2016] Boeing executives speaking during a quarterly earnings call Jan. 27 said they expect the ongoing transition from the 737NG to 737 MAX among other factors to account for a lower delivery rate in 2016. The Original Equipment Manufacturer (OEM) delivered a record 762 aircraft last year, but expects to deliver between 740 and 745 aircraft with a projected revenue of between $93 billion to $95 billion combined for its commercial and defense divisions in 2016.
Boeing 737 MAX in production. Photo: Boeing.
Boeing's full year 2015 performance resulted in revenues of $96 billion. The 737, both the previous generation models and re-engined MAX, remain Boeing's revenue driver, accounting for nearly 4,400 unfilled orders of the current total backlog of 5,795 commercial aircraft, valued at $431 billion.
Boeing CEO Dennis Muilenburg and Chief Financial Officer (CFO) Greg Smith also told analysts and reporters that the transition to the 737 MAX will require production of test aircraft this year, which will contribute to the projected drop in deliveries for 2016. The recently announced production rate drop for the 747-8 to just six aircraft per year will also have an impact.
"Given the 737’s robust backlog of nearly 4,400 formal orders and continued healthy global demand, we have decided to move ahead with an additional production rate increase in 2019 to 57 aircraft per month," said Muilenburg.
When asked about the prospects moving forward for demand of the MAX against the competing re-engined Airbus A320neo (new engine option), the CEO noted the advantage in market share that Airbus currently enjoys with the A320 against the 737. However, he believes the 737 MAX offers a better value proposition.
"I recognize the numbers, but I think it’s important to note [that] since we launched the MAX, it’s been about 50-50 in terms of orders, and we also like to make sure we’re looking at deliveries of airplanes and, as noted, again we’re the market leader in total deliveries this year. When we think about market share it’s important to think about both deliveries and future orders. We’ve had the MAX in the marketplace and competing. Based on feedback from our customers we see that the MAX is providing a value proposition beyond our competitors," said Muilenburg.
The CEO also discussed the commercial market performance of the 777, which is in the earliest stages of transition to the re-engined 777X model. Currently, Boeing has a backlog of 306 orders for the 777X from six different customers and is also still seeing healthy demand for the current generation 777, starting the year with a recent order for six 777s from Air China.
The current 777 backlog stands at 224 total orders and the transition to the 777X will require Boeing to reduce production of the 777 from eight to seven aircraft per month in 2017.
"Regarding the transition to the 777X, we indicated last year that we did not anticipate the production rate on the program going below seven per month. In solidifying our production plan over the past few months, we can confirm that view with a timeline for shifting to a 777 production rate of seven per month starting in 2017 to ensure a smooth transition to the 777X. In terms of production slots, we’re sold out on the 777 in 2016, at the seven per month rate in 2017 we’re approximately 80 percent sold out and feel good about customer demand to fill the remaining slots," said Muilenburg.
Regarding growth opportunities, Boeing sees China as a key market. In September 2015, Boeing signed a deal with Commercial Aircraft Corp. of China (COMAC) to build a 737 completion and delivery center in the country. Muilenburg said, based on the current level of airline passenger demand in China, the region is currently underserved by 1,000 aircraft.
"We also continue to see strong growth in Chinese airline passenger traffic. In 2015 passenger traffic in China increased 15 percent compared to [Gross Domestic Product] GDP growth of 7 percent, a steady trend we have seen for the past five years. Based on today’s Chinese passenger travel, we see the market as under-served by approximately 1,000 aircraft. With a middle class population forecast to grow 10 percent annually through 2025, the market opportunity is significant. Over the next 20 years we see the Chinese market needing over 6,300 new aircraft," said Muilenburg.