Clearing Skies: Boeing Anticipates an Increase in DemandMarch 25, 2010

 

Boeing announced that it will step up production of its largest aircraft to meet growing demand from customers, a clear sign that the airliner market is recovering.

The company now says it will boost its 777 program to produce seven planes per month, up from five per month, starting as early as the middle of 2011 instead of waiting until early 2012. It also says the company now plans to manufacture two 747 wide-body jets per month, instead of one-and-a-half per month, beginning in mid-2012 instead of the middle of 2013.

Jim Albaugh, president and CEO of Boeing Commercial Airplanes, credited the company's "conservatively managed approach to production" for putting it in the position to now increase output. The announcement of the production uptick comes less than a year after Boeing and rival Airbus received a rash of order cancellations and/or deferrals.

The company sees 2010 as the year of overall economic recovery within the industry and 2011 a year where airlines return to profitability, according to Randy Tinseth, vice president of marketing for the company. Airplanes. "As a result, we anticipate an increase in demand for airplanes in 2012 and beyond," he said.

Boeing's suppliers may face one of the biggest challenges as the company pushes to boost production of both the 777 and 747. Suppliers will have to kick into a higher gear to support the increases.

The problem may be that while the major defense and aerospace giants managed to ride out the worst global economic meltdown in generations with their financial health largely unscathed, tens of thousands of small companies that supply the prime contractors with components, parts and services may not have fared as well. These smaller suppliers were at risk of going out of business, not from a lack of orders, but rather from insufficient credit, which they needed for working capital, raw materials and payroll.

"Despite this ray of light from Boeing, suppliers are subject to the internal and exogenous conditions faced by all aircraft manufacturers, including regulatory changes, macroeconomic forces, political conflicts, terrorism, declines in business travel based on technological innovation, fuel, labor and operating costs," said Lawrence Gelburd, a lecturer on entrepreneurship at Wharton. "Long lead times, material costs and availability also add to the challenges."

Boeing may want to start producing more jumbo jets even sooner than the announced plans suggest, but the company will have to insure that its suppliers also can speed up their engines.