According to a media report, Boeing Co. BA plans to cut production of its 747 jumbo jets by 23% to only one per month beginning March 2016 due to weak demand for the wide-body commercial jet airliner. The Chicago, IL-based aircraft manufacturer is currently producing 747 aircraft at a rate of 1.5 per month, which would go down to 1.3 per month from September this year.
Following the breakout of the news, shares of Boeing dipped 0.4% till the closing session yesterday.
Boeing 747, which came into service in 1970, is also designed as a cargo aircraft. It has gained popularity among air freight companies and is well accepted for its large capacity.
However, Boeing expects demand for jets with seating capacity of over 400 people to slow down over the years. It is also apprehensive about the sluggish near term growth in the cargo market.
Recently, the company lowered its prediction for deliveries of four-engine jumbo category (which includes aircrafts such as Boeing 747 and Airbus A380) in the industry to 540 aircraft over the next 20 years from the previous forecast of 620 aircraft.
Despite the slowdown in the freight airlines market, Boeing has recently raised its demand forecast for new airplanes by 3.5% to 38,050 over the next 20 years. The company has estimated the total value of these airplanes at $5.6 trillion.
Boeing expects 8,830 new airplanes will be needed in the widebody segment, driven by small widebody airplanes in the 200- to 300-seat range such as the 787-8 and 787-9 Dreamliner. The company foresees a continued shift in demand from large airplanes to new twin-engine products such as the 787 and new 777X.
Boeing predicted 4.9% annual growth in passenger traffic during the guidance period, which is near the historic growth of 5%. It also expects cargo traffic to grow at a rate of 4.7% per year during the guidance period.
Currently, Boeing holds a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Lockheed Martin Corporation LMT, Northrop Grumman Corporation NOC and Leidos Holdings, Inc. LDOS. All of these carry the same rank as Boeing.
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