The Boeing Co. says it will cut back the production rate for its 747 jets to one every two months and report an $885 million pre-tax charge against earnings, due to the slower-than-expected recovery of the air cargo market.
“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 president and CEO of Boeing Commercial Airplanes, said today in a news release.
He voiced confidence that business would pick up for the 747-8 jet as companies replace their older 747-400 freight airplanes, but said cutting back production was a “prudent step to further align production with current market requirements.”
Some observers were less sanguine about the 747’s prospects. The Financial Times’ Robert Wright wrote that “the cut comes amid a near-evaporation in demand for the four-engine aircraft as airlines shift to twin-engined jets for even the longest-haul routes.”
He speculated that the company is keeping 747 production on life support only because the Air Force has ordered 747-8 jets for delivery starting in 2018. They’ll serve as presidential Air Force One jets once they’re customized.
Right now, the production rate for the 747-8 at Boeing’s plant in Everett, Wash., is 1.3 jets per month. That’s due to drop to one a month in March, and then to 0.5 per month in September.
The 747 is the only commercial jet Boeing still makes with four engines. Boeing also makes twin-engine 767s, 777s and 787s in Everett. The 737s and 757s are made at a plant in Renton, Wash. Boeing rolled out a new model called the 737 MAX in Renton last month – and with the addition of a third assembly line, it could theoretically ramp up 737 production to 63 per month by 2020.
The company said its recap of fourth-quarter financial results, due for release next Wednesday, would report an $885 million charge to account for the impact of the 747 slowdown. Boeing said that translates to a $569 million write-off after taxes. “The earnings charge will not affect the company’s 2015 revenue or cash flow,” Boeing said.
Listen to a Boeing podcast in which Randy Tinseth, vice president of marketing for Boeing Commercial Airplanes, discusses the reasons behind the production reduction and what it means for Boeing’s business.