Talk of 60 737s a month unjustified, says analyst

Note: According to the Puget Sound Business Journal, the new name for the 737RE is the NE737 (presumably for NewEngine). Dunno about you, but we are underwhelmed.

Note 2: On another topic, Boeing got certification of the 747-8. Delivery is expected next month.

Here is a piece we did this week for Commercial Aviation Online:

Date: 18/08/2011 10:30
Source: Commercial Aviation Online
Location: Seattle
By: Scott Hamilton

Studies by Boeing to increase production of the 737 to as high as 60 a month cannot be justified by demand through 2020, or even 2030, according to a new analyst report by Wedbush, a Los Angeles-based investment bank.

In a 16 August research note, Wedbush’s aerospace analyst Kenneth Herbert believes a rate of 50 per month can be supported by 2015 through 2020, but that global demand and competition from new entrants in the 100-200-seat market means Boeing and Airbus can only justify this rate for the 737 and A320 families.

Wedbush also predicts that Boeing will keep production of the 737 re-engine at Renton (WA). Boeing’s CEO, Jim McNerney, said on the manufacturer’s second quarter earnings call that Renton was not the automatic choice for assembling the 737 re-engine and that other options would be considered. Boeing commercial airplanes CEO Jim Albaugh said separately that it will be six-eight months before a decision on the assembly site will be made.

Wedbush’s Herbert believes Renton will prevail because of the economic and production risk of building the airplane at an entirely new location. Wedbush characterises a new production site as having high cost for a “relative low production volume.” By keeping the 737 at Renton, profit margins for the 737 programme can also be retained, although Wedbush foresees pricing pressures on the 737 in the second half of this decade.

To make room for the 737 re-engine at Renton, Wedbush foresees Boeing moving the 737-based P-8A Poseidon sub-hunter production to nearby Boeing Field. Shrouded with defense secrets that can complicate a shared production line with a commercial product (though Boeing will do this for the 767/KC-46A), the P-8A is in a separate building a few yards from the 737’s two production lines. However, Boeing’s Pat Shanahan, VP of aircraft programmes, and Nicole Piasecki, vice president of business development and srategic integration, both said a third commercial 737 line can share the building with the P-8A.

Wedbush called Boeing’s decision to move ahead with the 737 re-engine instead of a new small airplane as clearly “the right decision.”

Although Wedbush believes the 737 re-engine design development is six-12 months behind Airbus’ A320neo, despite Boeing’s work on the re-engine for at least two years, Wedbush thinks Boeing will begin to recover market share once the board of directors formally approves the programme, in part through “aggressive pricing.”

Wedbush estimates American Airlines, the launch customer for the 737 re-engine, may have secured a price of $45-$50 million versus an estimated sticker price of $85 million.

Boeing would have seen its market share for the 737 decline to 35%-40% for the medium term had it pushed ahead instead with the new small airplane, says Wedbush. As it is, Wedbush predicts Boeing will end this year with 300-400 737 orders compared with the A320 family of between 900-1000 orders.

(Airbus has already announced nearly 1,500 orders for the A320neo, but whether all will be transformed into firm contracts by the end of the year remains to be seen. Doing so is a major goal of Airbus’ John Leahy.)

10 Comments on “Talk of 60 737s a month unjustified, says analyst

  1. While building 60 B-737NGs and B-NE737s may be possible,Boeing needs to look closely at what that will cost.

  2. Building 60 NE 737’s from 2015 will be possible somehow.

    Selling them with a reasonable profit is another topic.

  3. The granting of the 747-8F certification is great news.
    Looking forward to see this beautiful aircraft in operation. 😉

  4. keesje :Building 60 NE 737′s from 2015 will be possible somehow.
    Selling them with a reasonable profit is another topic.

    Are you implying Boeing is going to sell the B-NE737 at a loss? Do you have evidence of that? What is the list price of the B-737-7, B-737-8, or B-737-9? Is Airbus selling their A-32X-NEOs at a loss? How do you know if they are or are not? Do you know what each customer has agreed to for a sales/lease price for the NEO or the NE?

  5. Kctb, Boeing sold the first few hundred 787s at a loss. Now they are selling a concept they said wouldn’t cut it just months ago, against a competitor that isn’t inferior nor unsuccesful. I have no proof B sold AA the 100 737 REs at a healthy profit. I doubt it.

  6. Keesje, how do you know that? What price is AA paying for them? How much will it costs to produce each B-NE737? Since you have no proof Boeing sold them to AA at a profit, you also have no proof they sold them at a loss. All I am asking you to do is back up your statements with hard evidence.

    I have no proof AA got the A-320s and A-320NEOs at a huge loss to Airbus, or made huge profits from the sale. So, I didn’t accuse Airbus of either one.

  7. “Boeing would have seen its market share for the 737 decline to 35%-40% for
    the medium term had it pushed ahead instead with the new small airplane,
    says Wedbush. As it is, Wedbush predicts Boeing will end this year with 300-
    400 737 orders compared with the A320 family of between 900-1000 orders.”

    Not a bad prediction for Boeing 737NE sales by the end of the year, in contrast
    with the conservative prediction of a 35-40% decline, if Boeing had gone for an
    all new aircraft.
    I believe the 737RE, will eventually secure close to a 50% share of the market.

    How and where they will build them, is not a critical issue as far as the program
    is concerned, recognizing that it is of great importance to the local economy!
    I predict that Boeing cannot effort to abandon the experienced 737 workforce
    in Renton and that they will SPLIT the production line only, if they really cannot
    cope with the volume in Renton, AFTER moving all 737 military production to
    Boeing Field.

    • “I believe the 737RE, will eventually secure close to a 50% share of the market.”

      Could well be.
      But it will further bifurcate the market in the next years.

      One group of customers will go for cheap.

      The other will go more efficient up front slightly more expensive crafts.

      Compare to the auto market ( in historic retrospective
      “Toyota Prius versus the 1930ties truck based SUV” )

  8. Pingback: Stalled recovery wouldn’t hit airplane orders, analysts say | seattle news

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