Boeing Sets Fall Target for 737 Decision - TheStreet

Boeing Sets Fall Target for 737 Decision

Boeing said it will likely decide by fall on whether to replace the existing 737, the world's leading aircraft.
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Boeing

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is putting the pieces together to redesign its 737. It has a product development model, it has space in its R&D budget and it expects to make a decision by the fall.

The 737 is the best-selling aircraft in history, with close to 6,400 delivered and more than 2,000 outstanding orders. Nevertheless, "we know that no program lasts forever," said Jim Albaugh, CEO of Boeing Commercial Airplanes, during a Thursday webcast conference with analysts. "We want to be a company that obsoletes what we do today."

Albaugh said that a decision will likely come in the fall and noted that the decision will follow consultation with customers and suppliers.

Last week, Boeing said it would

increase production of the existing 737 in 2012 to meet growing demand. But longer term, the largest U.S. exporter faces various questions about whether to

replace its best product.

"It's a mixed bag from the customers," Albaugh said. "The people that don't have the 737 would like us to do a new airplane

and the people that have the 737 would like us to do a re-engine."

The latter group, which includes leasing companies and carriers, is concerned that residual values and service levels that might decline if a new model is created. "We will make the decision with our customers," Albaugh declared. "It's not going to be our decision

alone."

Looking ahead, Albaugh noted that Boeing faces increased competition from emerging aircraft manufacturers in five countries: Canada, Brazil, Japan, China and possibly Russia. "Right now, we're in a duopoly with Airbus," he said. "Those days are almost behind us." Continued success requires continued product leadership, he said.

In a recent report, Morgan Stanley analyst Heidi Wood said she expects that Boeing will choose to develop a new narrowbody aircraft, rather than adding new, more efficient engines to the existing 737. She said Boeing will spend as much as $13 billion on the new model, which could have two aisles.

Meanwhile, CFO James Bell acknowledged that development of the production model for the Boeing 787, which includes extensive outsourcing, has been difficult, but added: "This is the model we're going to use to build new airplanes, and we've just got to get it right the next time -- more right." Boeing continues to expect it will deliver the first 787 to launch customer

ANA

this year.

As for R&D spending, Bell reiterated that the total amount will be $3.9 to $4.1 billion in 2010. Going forward, he said, the amount could decline by $500 million in 2010. "We're going to continue to spend at a higher level

than in the past but down from this year," Bell said. He assured that R&D funding would be available for new model 737s and 777s, if required.

No one raised the question of where a new model 737 would be built. But when an analyst asked whether Boeing's new Charleston facility would be immune from labor disruptions, CEO Jim McNerney responded: "The facility will eventually be self-sufficient. To say that today it's totally immune from a work action would be overstating the case. Our plans are to have in place a self-sufficient, self-perpetuating, insulated (facility) ... That's in the works."

-- Written by Ted Reed in Charlotte, N.C.