Boeing 777 production rate cut reflects steep sales drop
13 December 2016
Boeing Co (BA.N) said on Monday that it will cut production of its twin-aisle 777 jetliner to five a month in August 2017, a 40 percent reduction from the current rate of 8.3 a month.
The cut to one of Boeing's cash cows comes as the company is spending to produce new models, and is expected to put more pressure on the company and its suppliers.
But despite the lost revenue from making fewer jets, Boeing on Monday said it was increasing its dividend 30 percent and authorizing $14 billion in share repurchases, making good on promises to keep returning cash to shareholders, more than analysts expected.
Boeing shares fell 1 percent after the market closed on Monday, but reversed and were up 1.7 percent at $160.22 in after-hours trading, after the dividend and buyback news.
The 777 production cut will affect employment and have a "modest impact" on Boeing's 2016 results, but won't alter its 2016 financial forecast, the company said. The current-year results are affected because of Boeing's accounting practices.
The world's biggest planemaker was already planning to reduce 777 production to seven a month in January in response to slowing global sales of big jetliners.
It had prepared the ground for a further cut. Chief Executive Dennis Muilenburg said in October that Boeing may lower production further, but not to fewer than five planes a month.
But slow sales of the 777 have left a gap in the assembly line as Boeing shifts from the current model to the 777X over the next few years. The 777X is due to enter service in 2020.
Boeing must either find buyers for the empty production slots or cut production to avoid building "white tails," the industry term for planes that aren't sold.
"It will be painful, particularly since the 777 is their most profitable aircraft, and there will be further cuts to come," said Richard Aboulafia, an analyst at Teal Group in Fairfax, Virginia.
Boeing said on Sunday it had clinched an order with Iran for 30 777s, split evenly between the 777 and 777X.
But that will not fill the gap.
Boeing has booked 17 orders for 777s this year, down from 58 in 2015 and 283 in 2014.
"The twin-aisle market is glutted," Aboulafia said