The Boeing Co. announced it would lower production of its 747-8 cargo plane further, beginning in September, to match supply to expected near-term demand in a slowing air cargo market.
Boeing said it would cut production in September to 0.5 a plane a month from 1 plane a month. The company previously announced that the rate would drop from 1.3 per month to one per month in March 2016.
“Global air passenger traffic growth and airplane demand remain strong, but the air cargo market recovery that began in late 2013 has stalled in recent months and slowed demand for the 747-8 Freighter,” Ray Conner, Boeing vice chairman and CEO of Boeing Commercial Airplanes, said in a statement. “While we remain confident in the 747-8's unique value proposition and an upcoming replacement cycle for late-model 747-400 Freighters, we're taking the prudent step to further align production with current market requirements.”
The most recent air transport industry data show that air freight contracted in November, with volumes declining by 1.2% compared to the same time a year ago. This contrasts with global passenger demand, which grew at 5.9%, above the 10-year average rate, according to the International Air Transport Association.
“We are closely monitoring the air cargo market as we work to win additional orders to support ongoing future production. At the same time, we continue to aggressively drive productivity to lower costs across our production system to offset the current market challenges,” CFO Greg Smith said.
Boeing’s backlog is enough to keep building 747s only through mid-2017, Bloomberg News said in December.
Asked to confirm the backlog, Jim Proulx, a Boeing spokesman, said, “We don’t comment on our backlogs by program.”
“The question is, can they get enough orders in the next five years to keep the production line open?” George Dimitroff, head of valuations for consultant Ascend Worldwide, told Bloomberg. “If they close it, there is nothing to replace it.”
Also, Boeing said its commercial airplanes unit will report a charge of $885 million. The earnings charge will not affect the company's 2015 revenue or cash flow, the company said.
