Boeing Company (BA) announced plans to increase production of the Next-Generation 737. Boeing will increase the production rate to 34 airplanes per month in early 2012 from the current rate of 31.5 airplanes per month.

Boeing has sold over 5,200 Next-Generation 737 to its customers throughout the world. Even the decline in the global economy has not reduced the demand for the Next-Generation 737, given its efficiency and low operating costs. The company still has more than 2,000 unfilled orders from over 80 customers worldwide.

Boeing’s plan to ramp up production aims to satisfy the growth in demand as well as fleet replacement needs of its customers. The company continues to explore the avenues for future production growth, given the steady demand for the 737. The company also intends to re-engine the 737 airplane, which will improve the fuel efficiency by 10-15%.

The company will require more raw materials to meet its higher production rate of the Next-Generation 737, and the suppliers of Boeing are prepared to meet the enhanced requirements.

Boeing’s peers, Embraer (ERJ), Force Protection Inc. (FRPT) and General Dynamics Corp. (GD) have yet to come up with a commercial airplane which will challenge the dominance of the 737.

Headquartered in Chicago, Boeing Company designs and produces commercial airplanes (787, 737, 747, 767, 777), defense systems, and civil and defense space systems. It is also the largest National Aeronautics and Space Administration (NASA) contractor.

Our View

Even though the incremental production will not have any material impact on the financial results of Boeing in 2010, we appreciate the move. As the global economy is showing some signs of recovery, we believe Boeing’s decision of boosting production of 737 will be accretive to 2012 earnings. Since the production increase will not have any near-term impact, we retain our Neutral view on the stock.
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