By Jon Ostrower
Boeing Co. will slow production of its 747 jet to just one a
month in 2016, though the plane maker said it remains committed to
the jet and expects a recovery in the air cargo market to drive
future sales.
The company has just 32 firm orders for the upgraded 747-8
version of the jumbo as of the end of May, and sales have been
sluggish as airlines and air cargo operators opted for the biggest
twin-engine jets such as the Boeing 777 or Airbus 330 to handle
long-range routes.
The updated 747-8, which was introduced in 2011 and comes in
passenger and freighter versions, had been viewed by analysts as
one of the key early challenges for incoming Chief Executive Dennis
Muilenburg.
Slowing production to extend the program's life also allows
Boeing to remain on track to supply 747s to replace the aircraft
that serve as Air Force One, the U.S. presidential transport.
The larger and more fuel-efficient 747-8 was selected in January
to replace two heavily-modified Boeing 747-200 planes used by the
president that are due to reach the end of their planned 30-year
life in 2017. Boeing has yet to be awarded a contract, though the
planes are expected to come into service in 2021 following several
years of modifications and testing.
Boeing has repeatedly cut 747 production, from an initial 1.75 a
month to 1.5 at present, and plans to slim this to 1.3 in September
before its latest cut, coming in March. The one-a-month rate is
still profitable for the company, executives have said, but Boeing
jet programs rarely have dropped below this level.
A commitment signed at the recent Paris Air Show for Russian
cargo operator Volga-Dnepr Group to acquire up to 20 of the
freighter versions may provide Boeing with some breathing room to
secure additional sales and keep the production line open, but the
agreement has yet to be firmed up and exactly how many jets would
be delivered and over what period is still unclear.
The production slowdown could actually ease some financial
pressure on Boeing as 747-8 sales have been heavily-backed by the
Export-Import Bank of the U.S., whose future remains in limbo.
Standard & Poor's said Wednesday that Boeing could face a
credit downgrade if it is forced to step in and provide additional
financial support if Ex-Im is closed or required to limit its
support for jets.
Boeing has said it may temporarily provide financing for some
aircraft purchases by airlines caught up in the uncertain future of
Ex-Im, with its mandate due to expire on June 30.
The plane maker's customers are the largest users of the Ex-Im
Bank, whose guarantees secure billions of dollars in commercial
funding annually. And Boeing, as one of the most vocal proponents
of reauthorizing the government-backed corporation, would have no
alternative because rival Airbus Group SE is able to rely on
European export credit agencies to support some of its jet
sales.
Standard & Poor's said it didn't expect Boeing to have to
finance itself all of the deals now supported by Ex-Im. However, it
singled out the potential need for Boeing to have to use its
finance arm to back planes such as the 747-8 that have been tougher
to fund without the federal agency's guarantees.
Cargolux Airlines International SA and Korean Air Lines Co. have
all used the bank to finance 747-8 deliveries.
Doug Cameron contributed to this article
Write to Jon Ostrower at jon.ostrower@wsj.com
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