Friday, November 1, 2013

The Boeing Light Comes On and The Max Will Run out Renton's Door

Boeing to Increase 737 production  "Airwise"

Boeing is to increase production of its workhorse 737 aircraft to 47 planes per month by 2017 from 38 now, a surprise move that analysts said boded well for the company, its suppliers and airlines.
Boeing had already announced plans to increase production to 42 per month in the first half of 2014, matching current output by rival Airbus of its competing A320 jet family.
With the new target, Boeing would enter territory that Airbus isn't attempting. The output, from the same footprint at Boeing's 737 factory in Renton, Washington, will not only boost Boeing's cash pile, it will give the company more delivery slots to sell to airlines who want new, fuel-efficient planes sooner.
"This is a big, bold, but very strategic move by Boeing," that follows recent competitive wins by Airbus that likely have been "more heavily price-driven than in the past," said Russell Solomon, an analyst at Moody's in New York.
He said Boeing can also be aggressive on price and now can talk to customers about new orders "with the very pointed message that they won't have to wait as long to get their greatly desired new equipment if they buy Boeing vs. the other guy."

A bold move is part of a larger strategy of parry and thrust sward play with Airbus. Airbus is dimishing its customer A320 back orders at an alarming 42 a month pace, beating Boeing's thrust of 38 a month as of this current moment. Boeing would like the high ground in the single aisle market of 47 units per month, as stated in this article. What more could Boeing do by making this production disadvantage  on Airbus? Airbus stole the march on Boeing by adding 2400 Neo orders to its book. When Boeing only has taken 1500 MAX orders since its offering of the Max. Having started over a year later, it lags the Airbus Back Log. So its waging that a 47 unit output will sell more single aisle, because you will get them sooner into customers arms in this race.  Yeah, I'll call it the "Arms Race"
Because of the high volume and relatively low production costs, the 737 and A320 are often seen as cash cows, and play a big role in funding development of larger and technically more challenging aircraft like the Boeing 787 Dreamliner or the Airbus A350.
Boeing's rate increase was more ambitious than some forecasts. Carter Copeland, analyst at Barclays in New York, said he had penciled in Boeing building 46 737s a month around 2018. "I definitely didn't expect an announcement on it so soon," he said.
Just last week, Boeing said it would lift production of its 787 wide-body jet to 12 per month by 2016 and 14 per month by 2020, up from a target of 10 a month by the end of 2013.
While Copeland said he didn't have major concerns about the 737 supply chain keeping up with higher rates, he said producing so many of the current 737s and the 737 MAX "would seem somewhat challenging on the surface."
Challenging but necessary, the output of single aisle runs concurrently with these points of interest maintaining a shorter backlog in Boeing Just In Time (JIT)approach.

  • Increase cash flows
  • Increased investment performance
  • Customer delivery within a 5 year planning window
  • Greater Customer opportunity to maintain a shorter wait when first ordering.
  • 5 a month increase ='s 60 unit  a year closer to delivery
He added, "I'm sure the supply chain is quite pleased as the 737 is a profit leader for essentially everyone who's on it."
Boeing commercial planes vice president Beverly Wyse said in a statement that the higher rate would "lay a solid foundation as we bridge into production on the 737 MAX."
The company has 3,400 orders for 737 aircraft, including about 1,500 next-generation MAX models.
The 737 MAX will have new engines and other changes to make it about 14 percent more fuel efficient than current models.
Boeing said the first delivery of the 737 MAX is on track for the third quarter of 2017.

In contrast to the Boeing target, the chief executive of Airbus this week reiterated plans to hold its production rate of competing A320-family aircraft steady at 42 per month, saying the European company had some concerns about the fragility of the supply chain.
Rob Stallard, an analyst at RBC Capital Markets, said Boeing's move "might give Airbus reason to accelerate" its production beyond the 42 a month.
Airbus' output for narrow-body jets is based on an 11.5-month production calendar, implying average capacity for 483 aircraft like the single-aisle A320 a year.
Boeing is based on a 12 month production schedule, though the company traditionally closes for the week between Christmas and New Year.
Stallard said the new Boeing target was "incrementally positive" because speculation about rate increases in the latter half of the decade may had have "fully baked in the ramp, and suggests that the current up-cycle continues to have legs."
He added that any rate ramp carries risk.
The JIT Arms Race has started and Boeing aims to win this race. Its new engines and news designs are placed on a winner, should propel it beyond its order books, as all empediments are removed. The backlog does have risks as well as having a thin order book at the front end. In all JIT formulates a production build up number, and this is where the magic occurs for the bottom line. That build-up works hand in hand with marketing. The sales teams needs to know a year in advance, what are its stated goals, and can it achieve the goals on time, in order to keep the Arms Race on target. Get those units in the customers arms when the sales team makes that pitch of "on time delivery in quanity". 

The, "when do you want it question?", is just as important as the "how many do you want or need questions". Its hard to sell someone with a company five year plan in the vest pocket talking to Boeing marketing team about deliveries will start in 2021. Boeing hopes, that my friend is a NEO issue. Boeing would like to tune is sales program with customer knowledge. Where they will be ready to delivery on a customer's five year plan in numbers, and advancements, beyond its competitor whom is building the NEO.

The  NEO is backed into a full order book Jam with this type of strategy as it has 2400 NEO at rest and not going anywhere soon. Boeing too, is trying to break out of that strangle hold by targeting production to solve the problem. 

Having a 47 a month single aisle production capacity or delivery rate at peak periods, allows the marketing team more flexibilty for delivering promises it makes. Room that it requires, without it would box them into a... "well I don't know just yet, if we can get you your 20 Max's in the year 2020. Have you looked at our Gold care program Yet?" :>)

The build-up number for the order book, as an example: should have a two year production backlog which delivers a Just in time pace meeting customer planning goals for financing and route management, and it aalso migates risk from lack of back log for Boeing. This example would allow sales and demand some flexibilty with a 47 per month break neck production speed.  

They have publically recoginized this arms race and are actively employing the troops to get single aisle NG's and Max's into the Boeing customer's arms from Renton, Washington's lakeside doors .
Airbus and Boeing both see demand for over USD$2 trillion worth of such aircraft over the next 20 years.