American planemaker Boeing is cutting its 787 Dreamliner production again, making this the fourth adjustment in 18 months. The company posted zero deliveries for the month of November, with only four deliveries taking place in October. Recent production issues have further affected Boeing’s ability to deliver the new jets.
From six down to five
According to Reuters, the most recent cut in production will take output down to five planes per month from six, representing a 16% reduction.
Boeing also told Simple Flying that its Chief Financial Officer Greg Smith said,
“And as we’re transitioning to that lower rate between now and May 2021, we’re going to see the effective production rate be below 10 for that period of time.”
This fourth cut going from five to six is a relatively small reduction, comparing it to the mid-2019 rate of 14 a month, and shows just how much things have changed for the company. This will not take effect immediately as the cut will take place by mid-2021. Boeing executives have made it clear that many of its aircraft remain undelivered. At a Credit Suisse conference, the following remark was made:
“We’ve got a large number of undelivered 787 aircraft,” – Greg Smith, Chief Financial Officer, Boeing via Reuters
Concerns over airline deposit payments
Smith also discussed the issue of pre-delivery payments (PDPs) for aircraft not yet built. These deposits, made at intervals agreed upon by Boeing and the customer, are needed to fund the rest of the planemaker’s operations.
However, customer airlines dealing with their own cash flow problems may seek to defer delivery and accordingly adjust their payment schedule. This ‘knock-on’ effect from the airline passenger, to the airline, to Boeing, could spell trouble for the company.
According to Reuters, Smith noted,
“…there are even more moving pieces around PDPs than there would typically be,” adding, “I think we’ve got a couple years here where PDPs will be a little bumpy.”
Overall confident on the long-term outlook
While the short-term situation looks to be full of challenges, Smith is confident that balancing the supply and demand through the near-term impacts of the global crisis will see the company thrive in the long-term.
Smith said the following, as per Reuters’ report,
“…we do remain very confident in the long-term outlook and certainly, with the health of the 787 as you’ve seen between the versatility and just the demonstrated market-leading economics that airplane brings to the marketplace. The long-term potentials post-pandemic are very robust.”
Smith adds that international passenger traffic is still the hardest hit segment of air travel, remaining about 90% below 2019 levels at this time last year. He said that this has affected the overall near-term demand for the widebody markets.
When do you think Boeing will increase its production rates again? Will it be before 2025? Let us know what you think in the comments.
