Aug. 10, 2016, © Leeham Co.: Executives of one of the world’s most influential leasing companies said Friday they doubt Boeing will increase production of the 787 from 12 to 14/mo.
Air Lease Corp. made the predictions on its 2Q2016 earnings call Friday.
ALC also predicted Boeing will further lower the production rate of the 777 Classic from the announced 5.5/mo in 2018. ALC did not specify a rate, but some aerospace analysts believe a rate of 4/mo is coming.
They also believe neither Boeing nor Airbus will increase production rates of the 737 to 57/mo or A320s to 60/mo. Boeing announced previously that it is considering increasing the 737 rate from the announced 52/mo, effective 2018, to 57/mo. Airbus previously announced it will increase the production rate of the A320 to 60/mo and is considering a rate of 63/mo.
Airbus is bringing the rate up from 44/mo to 60 by 2018.
John Plueger, the CEO of ALC, was brief in his prediction of the 787 production rate. Boeing last year indicated that it was planning rate 14/mo, but this year began qualifying its forecast with more ambiguous language.
LNC believes it may be difficult for Boeing to maintain a rate of even 12/mo by the end of the decade.
“It would probably a no surprise if, in fact, Boeing…decided not to boost the rate on the 787 to 14, that they left it at 12,” Plueger told analysts on the earnings call.
”I think it would be no surprise that we may see a further rate reduction, for example, on the 777, As you know, going out over the next year, year-and-a-half. So, that would really be of no surprise.”
“I think the big question is about the single-aisle rates,” Plueger said. “And today…the backlog remains strong. Both manufacturers remain over-booked in a number of months. We’ve actually seen those charts from each manufacturer by customer. And many – those over-bookings are real. And so, it’s a bit of a dilemma because they do actually need some cancellations and deferrals just like when you show up at an airline counter and there’s too many seats sold, that needs to happen.
“But when we get out to 2018 and 2019, we’re watching carefully,” Plueger said. “I’m not 100% convinced…that we’re going to get to 62 a month with Airbus or that we’re going to get to 57 a month with Boeing on the single-aisle.
“We’re just a little skeptical of that. And what we’re saying here is we believe that if, in fact, the overall marketplace does not support those rates, then, in fact, both OEMs will simply not institute the last and final production rate increases as they’ve announced [as of] today.”
Steven F. Udvar-Házy, executive chairman of the ALC board, concurred.
“I can tell you that last week, we met with Airbus top management. This week, we met with the Boeing top management, and I think they’re very conscious of making sure that their production rates are in complete harmony with demand, and that the contracts they have will actually perform at the time of delivery.
“I think there’s a greater level of looking at this than, say, a year ago. I think there’s a greater consciousness that there needs to be this equilibrium.”
“Let’s look at the second quarter announcements also, for both Airbus and Boeing,” Plueger said. “Both companies took large write-offs in various different reasons.
“I think at the end of the day, this shows as well that both of these companies are more focused than they’ve ever been on realism, realism in production rates, realism in their operating performance. These write-offs were something that was needed, it became obvious, and they did it.”