Boeing will increase 737 production to 35 a month in early 2012, up from a previously planned goals, the company announced Tuesday.
"Our customers continue to show their preference for the Next-Generation 737 by exercising order options as well as by placing new orders," Boeing Commercial Airplanes President and CEO Jim Albaugh said in a news release. "We've managed our current backlog efficiently and increasing rate is the product of our comprehensive planning and preparation. We will continue to monitor demand as we go forward."
Boeing announced May 17 that it would boost 737 production to 34 in early 2012 and study further potential rate increases. Tuesday's announcement "acknowledges the anticipated long-term growth in this market segment and the continued pressure to raise airplane output to match expected market demand," Boeing said.
Speaking at a conference earlier this month, Boeing Chairman, President and CEO Jim McNerney said a further rate increase depended more on making sure the supply chain was ready than on demand. On Tuesday, Boeing said it and suppliers "will prepare for the rate increase over the next 18 months, assessing readiness and ensuring an orderly ramp-up."
Boeing has 2,000 unfilled 737 orders, according to its orders and deliveries website.
Analyst Richard Aboulafia, vice president of analysis at Teal Group, said the narrow-body market looks pretty good for Boeing and Airbus, at the moment.
"The production rate increases that have been announced reflect a confidence that the current strong growth numbers will continue, but there's a lot of risk in that," he said.
One risk is a renewed economic slowdown or even a flattening of growth, Aboulafia said. Another is customer reaction to possible re-engining programs Airbus and Boeing may announce this year for their narrow-bodies.
So why do it?
"I think you just want to bring in the revenue when you need it and when you can get it," Aboulafia said. "(I)t's come at a time when Boeing has ramped up to an unprecedented level of spending in product development."
The announcement also is a signal to the market, Aboulafia said. "It's part of a better times message: More revenue coming in less cash going out for research and development."
Why send the message now?
"Partly because I think there's some doubts about the first couple of years of 787 profitability," Aboulafia said. "Sure cash is going to be coming in, but how much is going to be going out learning how to build this thing?"
