Boeing Co (NYSE: BA) Chairman and CEO Dennis Muilenburg on Wednesday expressed confidence the company would quickly overcome recent troubles with its new 737 MAX and 777X airplanes, but worried escalating trade tensions between the U.S. and China could undercut future sales of 767, 777 and 787 aircraft in its largest market.
“The lack of a trade deal does add risk to our widebody” projections, Muilenburg said Sept. 11 at a Morgan Stanley (NYSE: MS) investment conference in California.
Chinese airlines will need about 7,700 airplanes over the next 20 years and the aerospace manufacturer expects them to make significant orders for large passenger aircraft. China has bought 194 of the two aircraft and has 17 more unfilled orders, according to data on Boeing’s website, that could be threatened by higher tariffs. Chinese retaliation against U.S. tariffs, which range from 15% to 25% and will increase to 30% by December, are definitely a threat to future orders.
“We have reserved slots in our widebody production line for the 777 and 787 for Chinese orders. So, there is a dependence on Chinese orders ultimately coming through,” Muilenburg said. Widebody production requires longer lead times and there is less flexibility to trade production slots because they are tailored to customize aircraft for each airline, he added.
More immediately, the timing of 787 deliveries could be pushed back slightly as Boeing’s plant in North Charleston, SC, recovers from Hurricane Dorian last week, Muilenburg said.
MAX and 777
Boeing’s top priority right now is getting regulatory clearance for the 737 MAX to fly again after its March grounding by aviation authorities because of automated anti-stall software that contributed to two fatal crashes.
The no-fly order is a major reason why Boeing reported this week only 18 commercial aircraft deliveries in August and 276 for the first eight months, down from 481 for the same period last year.
Muilenburg reiterated that Boeing expects the plane to return to service early in the fourth quarter, but said there could be a phased ungrounding across nations because regulators around the world have different concerns.
Once Boeing gets the green light, it will take several weeks to get idled planes serviced and into airlines’ regular schedules. Muilenberg said Boeing has deployed teams to each customer to prepare planes that were parked and then carefully sequence them back into service, as airlines have asked.
About 380 planes were placed out of service in the spring. Boeing continued to produce 42 MAX planes per month and place them in storage. With a backlog of 4,400 orders, the company hopes to gradually ramp up production next year to 57 planes per month.
If the grounding isn’t lifted soon, suppliers can’t keep pace with production or customers can’t accept planes fast enough, it might be more efficient to temporarily halt production until all parties can catch up, but that remains an unlikely scenario, the CEO said.
“Once we get the MAX flying again safely, the long-term market remains very solid,” he said, noting the forecast for 32,000 narrow-body planes over the next 20 years.
As for the 777X, the fuel-sipping upgrade for the current 777 line, Muilenburg downplayed the importance of a structural failure last week during static ground testing, saying the plane was being tested at forces beyond anything that would happen during flight operations.
“There’s nothing there that we think is going to significantly impact the aircraft design or the flight test schedule,” he said.
The first flight, which was pushed back because of troubles discovered with new engines from GE, should take place in the first quarter of 2020 and deliveries could begin later in the year, Muilenburg said.
Solid sales of the 777 freighter are serving as a bridge for the production transition from the 777 to the 777X and adding schedule flexibility, he added.
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