Boeing Ups 737 Production Again - Analyst Blog

In anticipation of higher demand, Boeing Company (BA) once again raised the production rate of its Next-Generation 737 airplanes. Boeing will increase the production rate to 38 airplanes per month in second quarter 2013, from the current rate of 35 airplanes per month.

The next-generation 737 has been popular among airline operators since its introduction in 1997. Boeing continues to upgrade the airplane and a few aircraft scheduled for delivery toward the end of 2010 will be fitted with the new 737 Boeing Sky Interior. The company is also working to reduce fuel consumption in 737, with the airplanes to be delivered in 2012 promising to save fuel by 2%.

Citing a hike in demand, Boeing has already increased the production rate of Next-Generation 737 twice in 2010. The production rate was increased from 34 airplanes per month to 35 in June and from 31.5 airplanes to 34 in May.

As of September 14, 2010, the current year’s net orders received by Boeing for 737 stands at 250 airplanes. The delivery of Next-Generation 737 during the first eight months of the year touched 248 airplanes. Boeing expects to deliver 460–465 commercial airplanes to its consumers in 2010.

During the second-quarter call, Boeing guided revenues of $64 billion to $66 billion and earnings per share of $3.50 to $3.80. The company continues to expect 2011 revenues to be higher than 2010, primarily driven by the projected 787 and 747-8 deliveries.

Increased production of Next-Generation 737 will not have any material impact on 2010 financial results. The Zacks Consensus Estimates for third quarter fiscal 2010, fiscal year 2010 and fiscal year 2011 are a respective $1.01, $3.89 and $4.89 per share.

Boeing currently retains a Zacks #3 Rank (short-term Hold rating). The positive catalysts for the company are its order backlog and strong booking. However, we expect the likely reduction in the U.S. defense budget and a delay in the delivery of 787 Dreamliner to have adverse impacts on the company’s valuation. Consequently, we maintain a Neutral rating on the company.

Based in Chicago, Boeing Company designs and produces commercial airplanes, defense systems and civil and defense space systems. The major competitors of the company are General Dynamics Corp. (GD), Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC).