July 30, 2012
Michael Mecham San Francisco andMadhu Unnikrishnan Washington
The pressure for fuel-efficient jets has soaked up nearly all of Boeing's production slots for the next 12-18 months, which may frustrate customers and cause a dip in orders next year, but CEO and Chairman James McNerney says that does not mean business will be slack.
“We still see some opportunities in the mid-teens for widebodies, but by and large the pressure [will be] down after this year,” says McNerney, although he notes the “robustness” of Boeing's backlog—3,924 aircraft as of June—gives it plenty of work.
As if to underscore that point, as McNerney spoke during a July 25 second-quarter earnings call, Boeing was announcing that Aeromexico plans to buy 90 737 MAXs and 10 787-9s, a commitment with a book value of $11 billion, although the contract's true value may only be half that amount.
How well the global supply chain that Airbus and Boeing share will hold up to their increasing pressure for higher production rates is subject to debate. Both manufacturers acknowledge they need to monitor their suppliers carefully.
Boeing faces production pressures in both its single-aisle and widebody lineups. Airbus has greater strength in its A320 program, less so in its widebodies. After remarkable sales last year, the A320NEO program has slowed in 2012, and Airbus chief salesman John Leahy predicts the market is passing through the peak of the current order bulge.
McNerney is generally more bullish because of the continuing scramble of airlines to retire older, fuel-hungry models. His 737 MAX re-engining program lags the NEO, although Boeing expects it to catch up.
Boeing's book-to-build ratio of orders and production rates this year is likely to be higher than 1:1, largely because of the MAX, but “next year it may come down.” He predicts the 2013 order/production ratio should be about 1:1 overall, “but it will still be a strong [order] year.” Next year's order rates are unlikely to match some that Boeing has recorded since it launched MAX last year, including 150 from launch customer Southwest Airlines, 100 from Norwegian Air Shuttle, 201 from Lion Air and 75 from Air Lease Corp. But the company's expectation of 5% average annual passenger growth over the next 20 years keeps McNerney's outlook bullish.