by Jared Levy on June 17, 2010
Boeing (NYSE:BA) has announced plans to ramp up production of its ever-popular narrow-body 737 jet. BA currently completes 31.5 jets per month and will be aiming to increase that number to 35 by the end of 2012. There seems to be a sense of urgency within Boeing as this is the company’s second increase in production in a month’s time. There is currently a backlog of more than 2,000 of their best-selling plane, according to the Wall Street Journal. Executives at Boeing noted increased demand for new planes as well as the exercise of existing options already held by carriers. The bottom line is that this increased demand and subsequent increase in production could be a sign of global economic improvement (or at least stabilization within the air travel space).
Airbus also finds itself in a similar situation with its Airbus A320, which competes with the 737. Airbus will also be increasing its production from 34 planes to 36 per month to meet its backlog of more than 2,300 planes. The dance between the two will be somewhat in sync as neither wants to find itself standing alone in a tightly woven, highly competitive sector that has some new players entering the space with jets that compete directly with the 737 and A320. Canadian equipment manufacturer Bombardier, for example, is nipping at the heels of the world’s largest commercial jet makers.
According to its website, Bombardier’s CSeries jet will seat 100-149 passengers and utilize the Pratt & Whitney PurePower PW1000G high-efficiency engine. Bombardier calls the engine “game-changing.” The plane’s unique design will supposedly operate with 15% less cost and use 20% less fuel than a comparable sized jet. The vehicles also boast wider seats and windows than comparable models in production.
Of course, BA and EADS (the parent company of Airbus) are looking to revamp their most popular lines as well, with industry experts not expecting a total revamp until after 2020. Much of the decision lies with a real “game-changer” engine design. It would cost billions for both manufacturers to design, test and successfully release a completely new aircraft. In the meantime, the two major players can incorporate a more efficient engine into the current design to increase efficiency and noise reduction, though there could be negative ramifications as for as the backlogs on their current models. Last week, Airbus COO John Leahy hinted that an A320 replacement may not come until 2027.
Regardless, if demand looks and remains strong and carriers such as American Airlines look to replace their fleets of aging MD-8Xs (American has 272 of them) and other aircraft, this could bode well for BA. American operates an all-Boeing Jet Fleet at present.
United, on the other hand, replaced its older 737s with A320s and they may be replacing their last 737s with the CSeries jets, which is a bonus for Bombardier.
There are dozens and dozens of airlines globally, all with different needs, route maps, and budgets. Ultimately, it is extremely difficult to know who will come out on top. Boeing is one of two major manufacturers of large jets and if global demand increases (causing production to continue to rise), BA could experience an earnings boost. Boeing believes that their customers will remain loyal and will be looking to Boeing to lead with new products.