Boeing to boost 737 output by 8 percent

Boeing Co. said it will ramp up production on its 737 jet to 34 a month in early 2012 and is studying further increases to meet customer demand for the world's most widely flown airliner.

Suppliers are prepared to boost their output by the 8 percent needed from the current 31.5 planes a month, Chicago- based Boeing said yesterday. Boeing has more than 2,000 unfilled orders for the 737, valued at about $69 million apiece at average list prices.

Investors and analysts watch the production rate because sales of the narrow-body jet generate the revenue to fund aircraft under development such as the 787 Dreamliner. Boeing's move follows the decision by Airbus SAS in March to step up output of the rival A320.

"We expect this announcement to drive shares higher," Noah Poponak, a Goldman Sachs Group Inc. analyst, wrote in a research note. "It confirms that Boeing and Airbus are raising production rates at a point in the economic cycle when they would normally be reducing them."

Boosting output isn't expected to have a "material impact" on 2010 financial results, Boeing said. The company didn't give a timetable for any further production moves, saying it "continues to study potential 737 rate increases."

Airline ProfitBoeing and Airbus have said they expect airlines to recover from the recession this year and return to profit in 2011, adding demand for new aircraft. Monthly A320 output will rise to 36 planes by year's end, after being pared to 34 in 2009, Airbus has said. The 737 and A320 form the backbone of airlines' fleets and are a barometer of the industry's health."Boeing is not trying to jam planes into the market," said Howard Rubel, a Jefferies Co. analyst in New York who like Poponak recommends buying the stock. "It's an encouraging sign."Boeing slid 14 cents to $69.68 yesterday in New York Stock Exchange composite trading. The shares have climbed 29 percent this year, compared with a 2 percent gain for the Standard Poor's 500 Index.Chief Executive Officer James McNerney said last month on a conference call that a decision on the production rate would come this quarter, and some analysts including Rubel had held off on including the increase in their economic models for the company until an announcement was made.'Very Strong'"Even through the global economic downturn, our diverse 737 backlog has remained very strong," Jim Albaugh, chief executive officer of Boeing's commercial airplanes division, said in a statement. "Increasing the 737 production rate is the right thing to do to meet the growth and fleet-replacement needs of our customers."Boeing is also deciding this year whether to offer a new engine to refresh the 737 or to design a new narrow-body jet to replace the plane. The company has delivered more than 6,000 737s since the aircraft entered service in 1968.A recovery in global air travel is helping trim the number of requests from airlines and other customers to defer plane deliveries, McNerney said last month. The International Air Transport Association said yesterday that economy-class traffic was "back to pre-recession levels" in March.