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Mon, Feb 11, 2008

Carson Says Boeing May Increase 737 Production

Orders May Come Soon From Delta, AA

Boeing may increase production of its popular 737 line of narrowbody airliners, if domestic carriers place orders soon for the planes.

In comments before Cowen & Co.'s Aerospace/Defense conference last week, Boeing Commercial Airplanes CEO Scott Carson said the planemaker has mulled over whether to increase production of Boeing's best-selling line of aircraft. "It feels like there might be enough solid demand to do it, but we're watching very carefully," he said, according to TheStreet.com.

In addition to the question of whether suppliers could keep up with increased production rates, there's also the matter of whether a number of domestic carriers will soon place orders to justify the increase. During a conference call with investors last month, Boeing CEO Jim McNerney said the planemaker has "been in extended discussions with a couple of the major carriers who have not participated in this order cycle. It wouldn't surprise me if a couple of deals with these folks came to fruition in '08."

Industry analysts think big Boeing orders from American and Delta may soon be forthcoming, as those carriers look to replace their fleets of McDonnell-Douglas MD80-family aircraft. American, for one, has said numerous times it wants to replace its aged MD-82s and -83s. The carrier is slowly replacing its 300-plane fleet of MD-80s with new 737-800s, from a previous order. The carrier is slated to receive 23 -800s through 2009.

This week, Carson (right) noted American's MD-80s "are not very efficient with this fuel price," and will need to be replaced sooner or later. If that order comes 'sooner,' it alone could be enough to support increased production.

Less certain are Delta's plans to replace its own MD-88s and -90s. Both types are somewhat newer than American's models, and have more-efficient turbofans. But airline spokesperson Betsy Talton says Delta has no plans for "a significant fleet replacement order anytime soon.

"The strategy is to improve the fleet we have," she added. "Acquisitions will be limited and strategic in nature."

There is a wild card, however -- a possible Delta merger with Northwest Airlines. If such a merger takes place, the combined carrier -- which many believe will be run by Delta -- may move quickly to replace Northwest's ancient DC-9 fleet. The DC-9s are paid for... but at such high fuel prices, the savings from using more efficient aircraft would likely offset the added cost of making lease payments.

If the decision to step up production comes, Boeing could make as many as 40 737s per month, up from its current level of 32 planes, according to industry analyst Scott Hamilton. "They've been looking at it for quite some time," he said. "The question has been whether the supply chain can do that."

Hamilton adds Carson criticized rival Airbus's plans in 2006 to ramp up production of the A320 narrowbody line. "In this hot market, it would be easy to be consumed with the desire to sell anything to people walking through the door who want to buy and push our production system to the point where you could break it," Carson said in September 2006, as reported by ANN. "It’s much harder to say, 'I’m sorry, we’re sold out.'"

Indeed, Boeing was hamstrung by that very problem in the late 1990s... and the resulting flood of Boeing planes in a cooling market, as it fought to compete with Airbus, almost bankrupted the planemaker.

There's also the question of whether Boeing's current five-year backlog on 737 production may be cut back drastically, as airlines seek to cancel orders due to slackening demand... which, depending on who you listen to, may or may not be coming.

FMI: www.boeing.com, www.aa.com, www.delta.com

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