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Boeing To Reduce Production In 2016, Orders For 6000 Aircraft By No Means Indicate Decaying Business

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(Credit: Luke Sharrett/Bloomberg/Getty Images) Boeing Co. signage is displayed outside a hangar where Boeing C-17 Globemaster III airplanes are serviced at the Boeing Global Services and Support facility in San Antonio, Texas, U.S., on Thursday, Jan. 20, 2016. Boeing Co. is scheduled to report fourth-quarter earnings before the opening of U.S. financial markets on January 27. Inside a Boeing Co. Aircraft Maintenance Facility Ahead of 4th Quarter Earnings Report
January 29
4:32 AM 2016

Boeing is grappling with several manufacturing issues centering its commercial aircraft. The aircraft manufacturer fears decline in the number of jets delivered to airlines and leasing companies this year compared to previous year. Following the forecast, US Aerospace Group's shares have been downed almost 9% on Wednesday.

The American multinational aircraft manufacturer's shares have nosed dived first to such extent since 2010. Boeing's predictions for production cuts have been accompanied by profit outlook for 2016, which falls short of analysts' expectations. However, Boeing's shares have recovered 1.2% by the close of trading in New York on Thursday, reports Financial Times.

Boeing has approached to reduce production after years of steadily rising outputs due to two reasons, predict the analysts. The first issue involves transformation of Boeing 737 to 737 Max and the waning demand for 747 jumbo jets. The second one relates to economic vengeance due to falling oil prices that causes decline in aircraft orders, reports News One Place quoting Richard Aboulafia, analyst at the Teal Group.

However, Dennis Muilenburg, Boeing CEO has termed the issues no more than short term hiccups for a company with a big backlog of aircraft orders. He has also argued that the production rate declining as a consequence of transition in production line up with 737 Max, reports Newstral referring a news briefing of the CEO on Wednesday about fourth quarter results, addressed to the analysts.

Following the news briefing, analysts have reshaped the key factor behind lower production forecast for 2016. The lower production is related to preparations for the handover of the first 737 Max to the customer in 2017. Working for 737 Max's entry into service in 2017 has been analyzed as the disrupting factor for production in 2016.

Weak demands for Boeing's once flagship 747 jet from the air cargo operators has forced the manufacturer to plan for producing less (six jets a year) from September. Furthermore, Boeing's customers have been ordering for fewer existing versions preferring to wait for revamped models featuring more fuel efficient engines.

Boeing has also responded to the buyers' calls by cutting production of existing 777 long haul jet from 8.3 per month to 7 in 2017. The 777X with new engines, successor to the 777, is scheduled to go into production in 2018. All these factors have accounted for lower production forecast for 2016.

But Boeing's future is not dependent on a particular year's production or individual models of jets. Boeing commercial aircraft division has recorded a backlog of firm orders for 5,795 aircrafts worth around $431 billion at catalogue prices, at the end of December. It requires eight year's rigorous works to remove the delivery backlog at this year's proposed production rate.

Aircraft purchasers are holding their orders and waiting for release of new fuel efficient versions. This factor has led Boeing to transform its production line. While adopting the transformation, it has decided to go slow in manufacturing. But the strategic issue has sent a wrong message to the investors and Boeing share prices have been nosed dived. Later on, Boeing CEO has represented its planning, related views and shared company strength with the analysts. However, analysts have got convinced with his revealed facts and strategies narrated.

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