With 266 Boeing customers ordering 12,100 737 units since the plane's introduction, Boeing's (NYSE:BA) single-aisle airliner is the best-selling commercial airplane in history. Perversely, that's posing something of a problem for Boeing.
Hoping to keep up with demand for the 737, Boeing confirmed this month that it will once again increase the rate at which it produces 737s. Effective 2018, Boeing plans to begin churning out 737s at the rate of 52 planes per month. As Boeing points out, that works out to 620 planes built per year -- the highest rate of 737 production ever, and a good 10-planes-per-month faster than the rate at which Boeing puts 'em out today.
But here's the amazing thing: Even Boeing's latest ramped-up rate of 737 production may not be fast enough to quench customers' thirst for new 737s. A quick glance at Boeing's order book shows you why. To date, airplane orders received -- and canceled -- at Boeing through mid-August 2014 stand at:
- 802 "gross" orders for various flavors of its 737 regional airliner
- 261 orders for 777s
- 48 orders for 787s
- four 767s
- and a pair of 747s.
As Boeing noted in its update, no new cancellations were reported over the past seven days. As a result, Boeing's 1,117 gross plane orders to date, minus the 106 reported order cancellations, leave Boeing's order book chock-full with 1,011 net new orders for the year.
(In other news, Boeing also noted that the past week saw only one new order for its planes -- specifically, a 747 transport going to AirBridgeCargo Airlines. According to S&P Capital IQ, AirBridgeCargo is a subsidiary of Russia's Volga-Dnepr Group -- so apparently, American sanctions against Russia for its "invasion" of Ukraine earlier this year don't extend to denying it airplanes from Boeing.)
What it means for investors
Russia and its 747s aside, though, this week's Boeing update has two key takeaways for owners of Boeing stock. Firstly -- Boeing's backlog isn't getting any smaller.
$440 billion strong and growing, Boeing's backlog is something of a double-edged sword for Boeing. On the one hand, of course, Boeing's in business to sell planes. The fact that its customers are hungry to buy the planes that Boeing builds is certainly good news for Boeing stock in the long run.
In the short term, however, the second takeaway comes into play, as we see demand continue to run away from Boeing's ability to supply it. Again, we're talking about 802 new orders taken in through just 10 months of this year. After cancellations, that number drops to 722 net orders, granted. But a production ramp to "only" 620 planes still won't be enough to slake demand. (And even that acceleration in production won't happen till 2018). This suggests that Boeing could encounter tighter profit margins as it is forced to hire new workers, pay existing workers more overtime, and maybe even open new plants or production lines to meet demand.
Make no mistake -- insatiable customer demand is a nice "problem" to have. But do keep an eye on those Boeing profit margins.