Boeing considers "modest' delivery cuts in 2010

By Stephen Trimble

Boeing Commercial Airplanes has considered making production cuts in 2010 depending on how the market responds to worsening economic and financing trends.

The company on 26 January predicted delivering between 480-490 aircraft in 2009, a sharp increase over strike-depleted deliveries of 375 aircraft last year.

But Boeing's financial guidance for 2009 "considers the risk that we might have to make modest production cuts starting in 2010", says Boeing CFO James Bell, addressing the Cowen and Company conference in New York.

Despite a historically large and diverse order backlog, a recent spurt of deferrals and order cancellations is already having an effect. Boeing now is quoting "some" open positions in 2010 on previously sold-out production lines for both narrowbody and widebody jets, Bell says.

Such pressure to reduce to production rates is partly offset by the impact of the 57-day strike by the International Association of Machinists and Aerospace Workers (IAM). Boeing's backlog recorded eight cancelled orders and 110 deferrals in 2008. The strike, however, delayed deliveries for 105 aircraft by more than two months.

But the trend of cancelled or deferred orders has not slackened so far in 2009.

"We've seen that pick up significantly in the first months of this year," Bell says.

Any change to Boeing's production schedule must be coordinated across the supply chain. Bell explains that Boeing usually must signal production cuts to suppliers at least 12 to 18 months in advance, although the company has moved faster in emergencies.

Jeff Turner, CEO of Spirit AeroSystems, a key Boeing supplier, says Boeing must inform the supply chain of production cuts within six months or be subject to contractual penalties.

"Absent some shock there would be a very smooth plan with not just us but with other key partner suppliers," Turner says.