Boeing slows production of 747; little financial impact seen

Reuters

By Alwyn Scott

NEW YORK, Oct 18 (Reuters) - Boeing Co said on Fridayit was notching down the production rate of its biggest plane,the iconic bubble-top 747, due to slack demand.

The slowdown won't affect financial forecasts for Boeing,analysts said, because production of the jet is so limited. Onlyabout 50 planes, with a list price of $357 million, arecurrently on order. Analysts expect Boeing to report solidthird-quarter results on Wednesday, and many predict its stock,currently at record levels, will continue climbing.

The rate reduction reflects declining use of the 747 and toa lesser extent its newer rival, the Airbus A380superjumbo. Rather than flying those large four-engine jets,many airlines prefer to fly slightly smaller twin-engine planesthat are easier to fill and burn less fuel.

The decision also reflects Boeing's prescience in decidingto build the 787 a decade ago. While Airbus developed thedouble-decker A380, which carries 525 people in someconfigurations, Boeing correctly predicted that airlines wouldwant long-range, twin-engine planes that can fly direct, pointto point routes, rather than carrying passengers through hubswhere they would have to change planes.

"The A380 has more life since it is much newer," said KenHerbert, an analyst at Canaccord Genuity Inc. But with thetwin-engine Airbus A350-1000 and Boeing 777X jets coming out,"the days of the quad engine are numbered, in my view."

Boeing focused on building the 250-seat 787, and extendingits best-selling 777 to fly farther and carry about 368passengers. Airbus is due to deliver the first of its A350family, which will eventually carry up to 350 passengers,starting next year.

The 747-8 carries 467 passengers in a typical configuration,and the company said it continues to invest in the plane, whichhas engine technology derived from the 787.

But sales have been slow. Only 107 of the 747-8 model havesold, and 56 have been delivered. So far this year, Boeing hasreceived just five orders for the 747-8. Five older orders werecanceled, however, leaving no new orders. The biggest buyer ofthe passenger version is Deutsche Lufthansa AG, with19.

The jet's use as a freighter also has been limited by weakcargo demand, although Boeing said it expects that market torecover next year.

Nippon Cargo Airlines Co, Cathay Pacific Airways Ltd and Cargolux Airlines International, are thebiggest buyers of the freight version, with more than a dozeneach.

Peter Arment, an analyst at brokerage firm Stern Agee, saidthe 747-8 freighter will probably continue to sell over the longterm. "But the introduction of the 777X will likely seal thefate of the 747-8 passenger version by the end of this decade,"he said.

Boeing continues to develop upgrades for the 747-8 toimprove its reliability and performance. The jet was originallyintroduced in 1970, and revolutionized travel with its abilityto fly large numbers of people over a long range withoutrefueling.

Boeing said it expects the world will need about 760 largeaircraft in the 747-8 size category over the next 20 years,worth about $280 billion.

"This production adjustment better aligns us with near-termdemand," Eric Lindblad, Boeing's 747 program manager, said in astatement. But, he added, it "doesn't change our confidence inthe 747-8 or our commitment to the program."

Boeing said that it will change the production rate soon to1.5 a month, down from 1.75 a month currently. It didn'tdisclose a date for the change, but said the first jet at thenew rate would be delivered in early 2014.

The slowdown will continue through 2015, the company said,by which time it expects the demand for the jet to increase.

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