B737 Line May Be Scaled Back, Despite Planemaker's Assertions Otherwise

In these difficult economic times, it's become something of a sport to openly question and contradict assertions of positive news from corporations... from the banking industry, to aerospace. With that in mind, it should surprise no one to hear analysts are less-than-optimistic about the chances Boeing won't drastically slash production of its popular 737 narrowbody airliner, despite the planemaker's statements to the contrary.

As ANN reported last week, Boeing announced drastic cutbacks in 2010 production numbers for its profitable widebody lines, including the 777. The planemaker said the changes were due to  "significant deterioration in the business environment for airlines and cargo operators driven by unprecedented global economic conditions."

Somewhat surprisingly, at the same time Boeing said it planned to hold production rates for its 737 line at current levels. That statement was met with raised eyebrows from several analysts.

"While Boeing is holding its 737 rate steady for now, we believe a 30 percent to 40 percent cut is necessary," wrote UBS aerospace analyst David Strauss Monday, reports The Chicago Tribune.

That sentiment was echoed by Cowen and Co. analyst Cai von Rumohr, who downgraded Boeing stock to "underperform" and believes the 737 line "is vulnerable." Von Rumohr notes despite healthy order backlogs for both the 737 and its Airbus rival, the A320 Family, a record 177 relatively new single-aisle planes currently sit idle in airplane boneyards, pickled due to capacity cuts.

Noted analyst Richard Aboulafia of the Teal Group points out narrowbody lease rates have also tumbled by about one-third, which is usually a sign production cuts are imminent... though that hasn't happened yet.

"That's weird," Aboulafia said. "Normally it all falls in tandem: lease rates on the one hand, production rates on the other... Manufacturers seem willing to accept lower prices for their goods. You're hearing that they're willing to renegotiate, do what's necessary to keep that cash flowing in the door."

Boeing spokesperson Vicki Ray expressed cautious optimism about 737 production rates, saying the planemaker has over 2,200 aircraft on firm backorder.

She then hedged her bets somewhat.

"We have no plans to reduce our 737 production rates at this time," Ray said. "We will continue to analyze our production rates as is prudent for conditions of the market."

FMI: www.boeing.com