Boeing is trying hard to swallow a bitter pill of late delivery charges and costs linked to production delays and to get back on top of its aircraft production rate buildup.
Boeing's decision to shut down its B747 and B737 production lines for a month follows a frenzy of production activity - Boeing has almost doubled its monthly production rates for both B737s and B747s over the past year.
The impact of the company's production recovery plans and late charges this year is put at $1.6 billion pretax, resulting in a net loss of $696 million for the third quarter. Boeing estimates that another $1 billion pretax will be lost in 1998.
Not only has the production shutdown given Boeing a huge financial pill to swallow, but the aftertaste from that pill is set to linger for some time. The company admits that some B747 delivery delays will run into 1999. 'This tumbles through the deliveries until we have some aircraft that are not sold or until we can increase the production rate, and we are certainly not in the mood to do that,' says Boeing Commercial Airplane Group president Ron Woodard. 'So, well into 1999 there are some B747s that are running one or two weeks late.'
While Boeing's production difficulties may take a long time to resolve, image problems should only be short-lived. US analysts are optimistic that Boeing has done itself little long-term damage in the eyes of its customers, as it has sought to build up its capability to meet market demands, albeit painfully. Boeing's chairman and chief executive officer, Phil Condit, says the decision to ramp up production so fast '. . . was clearly a decision that had risk', but he believes it was necessary. 'Our goal, clearly, is to be responsive to our customers. We see a long-term very stable production rate. I am overall very optimistic.'
Aside from its production woes, Boeing has also been concentrating on what to do with the Douglas Products Division in the aftermath of the merger. Its plan to end MD-80 and MD-90 production in 1999, when current commitments end, but keep the MD-11, brings few surprises.
Boeing is more coy about the newest McDonnell Douglas aircraft, the MD-95. Boeing will build the 50 MD-95s on order for launch customer AirTran, but a longer term decision on the aircraft's future will not be made until 1998.
Woodard views the potential market for the MD-95 over the next 20 years as 'substantial' and says the aircraft has few technical, performance or payload shortcomings. The possible development of derivatives to create a family of aircraft in the 80-120 seat range is under review. But the critical factor will be whether Boeing can reduce the production costs of the aircraft sufficiently to match the volume of sales at that end of the market. 'The key is, can we have a programme that is financially viable?' says Woodard.
While he works out that financial challenge, Woodard seems firm on building just the 50 firm orders for AirTran, even though AirTran's president, Joseph Corr, has emphasised that he is also keen to take the 50 MD-95s on option.
Meanwhile, Delta Air Lines has signed definitive aircraft purchase agreements to complete the deal with Boeing earlier this year for 106 firm aircraft orders, effectively making Boeing its sole supplier over the next 20 years. However the sole-supplier clause of the agreement is unenforceable due to conditions imposed by the European Commission on the Boeing/Douglas merger.
Karen Walker
Source: Airline Business
