Boeing (NYSE: BA) has a problem ... but it's a nice problem to have.
After months of rumors, Boeing confirmed last week that it's seriously considering increasing the production rate on its 737 single-aisle transport aircraft. Assuming it happens, this latest boost would be the fourth acceleration in 737 production in less than a year:
If Boeing proceeds with this plan, it can only mean good things for key 737 suppliers Spirit AeroSystems (NYSE: SPR) and United Technologies (NYSE: UTX), General Electric (NYSE: GE) and Honeywell (NYSE: HON). But why is Boeing contemplating this move?
Frankly, the 737 is selling like hotcakes. New customers like Xiamen Airlines and Air Lease Corp are lining up and begging Boeing to provide them with 737s. Existing customers look more secure than ever, as Southwest Airlines (NYSE: LUV) completes its tie-up with another of Boeing's bigger fans, AirTran.
Result: Boeing's backlog of 737s to build currently stretches seven years into the future -- a number that Boeing Commercial Airplanes President Jim Albaugh says is simply "too big." And there's every possibility it will get even bigger if a long-awaited sale to Ryanair (Nasdaq: RYAAY) materializes. That would add perhaps 200 new planes to the pipeline -- and more than five months' worth of work, at the latest announced production rate.
What's to be done?
Boeing believes it's just not good business to tell a would-be customer: "Sure, we'd love to build you a plane. Take a number, stand in line over there, and we'll get back to you in seven years." Hence, a rate increase may be inevitable.
The company's probably right. Another big sales win will force its hand, and faced with a crisis, Boeing will reluctantly raise its production rate once again -- and go crying all the way to the bank.
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