Boeing increases 737 production and surpasses estimates

Boeing increases 737 production and surpasses estimates

Boeing Boosts Production of 737 Jets Amid Positive Second-Quarter Results

Boeing, the leading aerospace company, has announced plans to increase production of its popular 737 narrow-body jet. The news has sparked excitement among investors, with Boeing’s shares rising by 7% and reaching a 1-1/2-year high. The planemaker aims to stabilize its production facilities while also setting its sights on further rate increases in the future.

Currently, Boeing is transitioning its 737 production line, including the MAX models, to build 38 jets per month, up from 31. CEO Dave Calhoun states that this move is crucial and will be followed by subsequent rate increases. He mentions that this trajectory will contribute to a more normalized margin trajectory for the company.

While Calhoun has expressed his enthusiasm to ramp up production to 50 or even 60 jets per month, he emphasizes the importance of ensuring production line stability as rate increases are implemented. Boeing has already signaled its plan to lift 737 production to 47 per month by June 2024. However, Calhoun also warns about potential supply chain constraints that could persist in the foreseeable future, as competition for resources intensifies.

Boeing has faced some challenges along the way, including supply chain constraints and quality issues. Calhoun acknowledges that these constraints may potentially affect airplane deliveries. The impact of a 737 quality issue at supplier Spirit AeroSystems, a work stop at Spirit, and the recent collapse of a railway bridge used for transporting 737 fuselages are expected to be contained in the third quarter. However, they might cause a slight delay in deliveries.

Despite these challenges, Boeing’s commercial planes division has witnessed higher deliveries of the 787 Dreamliner, resulting in a rise in revenue. Although Chief Financial Officer Brian West anticipates improved commercial margins, he expects them to remain negative in the third quarter.

Analyst Peter McNally from Third Bridge describes the second-quarter results from Boeing’s Commercial Aerospace division as “encouraging” amidst the ongoing supply chain challenges. He acknowledges improvements in Boeing’s execution and emphasizes the need for sustained profitability going forward.

However, Boeing’s defense business has faced negative margins due to cost overruns. The company has taken a total of $514 million in charges related to the space capsule Starliner, the T-7 training jet, and the MQ-25 tanker drone. CFO Brian West emphasizes the importance of improving defense margins in the coming year.

The decision to increase 737 production comes as travel demand rises, with airlines looking to expand their fleets post-pandemic. Boeing aims to deliver most of the 228 MAXs in its inventory by the end of 2024. Notably, Chinese customers account for 85 of these jets, while 55 MAXs originally destined for Chinese airlines have been remarketed.

Boeing’s second-quarter financial results also brought good news. The company reported free cash flow of $2.58 billion, a significant improvement compared to a cash burn of $182 million in the same period last year. The adjusted loss per share was 82 cents, beating analysts’ expectations of 88 cents. Boeing’s revenue also rose by 18% to $19.75 billion, surpassing expectations of $18.45 billion.

Looking ahead, Boeing reiterated its plan to generate $3 billion to $5 billion in free cash flow for this year and aims to deliver at least 400 single-aisle 737s and 70 787 Dreamliners in 2023.

Overall, Boeing’s decision to boost production of the 737 jets, along with their positive second-quarter results, have instilled confidence in investors. Despite ongoing challenges in the supply chain, the company remains committed to meeting growing travel demand and ensuring improved profitability across its divisions.

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