Production Rate Increases Could Be On Horizon For Boeing

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Friday, May 21, 2010

Last week, Boeing announced a rate increase on the all important 737 jetliner program. This week, Boeing is signaling there is likely more to come.

"Clearly the company is gaining momentum," Boeing Chairman and CEO Jim McNerney says. McNerney talks glowingly about the plane maker's future, pointing out Boeing's good fortune should lead to good things for the entire aviation industry.

Speaking at an investor's conference Thursday, top Boeing brass say they believe air passenger traffic will return to 2008 levels this year. They also expect freight traffic to reach pre-recession levels some time next year. Those numbers mean airlines are expected to be thinking about growth and buying new planes.

Jim Albaugh, Boeing Commercial Division President, says "I do believe we're starting to see the beginning of a cycle. We're hearing from customers that we haven't heard from in the past."

That's why Boeing is likely being conservative when it announced a rate increase on the 737 jetliner from 31 to 34 plans a month. Two things Boeing's watching closely before ramping up production rates further include keeping an eye on how the European economy does, and secondly, determining whether their supply chain can handle another rate increase.

That supply chain includes Wichita-based Spirit Aerosystems which builds roughly 75% of the 737 fuselage. Spirit generates half its revenue from the 737 program. So, when Boeing ramps up production, Spirit and the dozens of other area machine shop suppliers have to follow or risk losing business.

Boeing executives also tell investors they are confident the company will return to being the world's top maker of commercial planes. "We feel pretty comfortable we're going to be able to catch Airbus in terms of airplane deliveries in 2011 and certainly in 2012," Albaugh adds.

Those top Boeing executives say they're looking hard at increasing production rates again, and not just on the 737. It doesn't mean hiring will begin right away, but eventually suppliers will expand to meet Boeing's rate increases.

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