Boeing Looks to Build More 737s

SEATTLE (TheStreet) -- Boeing(BA) said it is evaluating an increase in production of its 737, the mainstay of its commercial aircraft business.

The company has a "solid backlog" of orders for the 737, which is in fact "oversold" over the next two years, said CEO Jim McNerney on an earnings conference call. "That is the bias in the evaluation right now," he said, noting a decision will be made in the current quarter on whether to increase production from the current 31 aircraft per month. "These rate adjustments are significant business decisions for us."

>>Boeing Net Income Drops 15%

Despite an 18% drop in first quarter earnings to $519 million, excluding items, Boeing said its outlook is favorable. Development of the 787 is on schedule, with the first delivery expected by the end of the year. Production is expected to reach ten a month by the end of 2013, with three of those built at Boeing's new Charleston, S.C. facility, which is under construction.

"Many of our airline customers are positioning for this recovery," McNerney said. While some customers continue to defer deliveries, "we are seeing growing demand from other customers for those delivery slots," he said. "The rate of acceleration in first quarter was notably higher than average (and) the backlog of deferral requests continues to decrease."

On the defense side, he cautioned, "The defense department and other agencies continue to face significant budget pressures [but] the 2010 defense budget and 2011 budget request contains strong support for many of our programs." Additionally, he said, international demand is strong.

Early this month, Australian carrier Virgin Blue agreed to purchase as many as 105 new 737s. It placed a firm order for 50 planes, with options for 25 more and future purchase rights for another 30. Boeing is expected to begin deliveries in June 2011.

Analyst Saj Ahmad of London-based FBE Aerospace said he expects 737 production to increase to about 35 jets a month as low-cost airlines continue to place orders. "These carriers that have better near term cash flow and traffic volumes to absorb new capacity," he said. "Factor in ease of finance on narrowbody jets like the 737 and A320 and it's easy to see why rates will go up."