Boeing (NYSE:BA) CEO Jim McNerney got behind the 777 program at the company's first-quarter earnings call in April to instill confidence in investors that the aircraft's production won't stop abruptly. What makes him so confident? And are the company's expectations realistic?
Demand remains strong
Boeing officials time and again have said that orders for the 777 classic won't dry out before the 777X starts full-scale production in 2020. The 777's current production rate is 8.3 per month (100 a year).
The company believes 50-60 orders a year will keep the 100-a-year rate viable and a production halt out of the question. At the first-quarter earnings conference, McNerney said: "Demand for both the 777 and the 777X remains strong. The 777 production line is essentially sold out for 2016, approximately half sold out in 2017, and has a healthy number of slots already sold firm in 2018." He said the company has 25 orders and commitments for 2015.
Recent orders ignite hope
Two recent orders (part of the 25 mentioned) have been quite encouraging for the program. United Airlines finalized the swapping of 10 787s for 777s on April 23, just a day after Boeing announced its first-quarter results.
Speculations regarding the United Airlines swap order had been rife since last year, with many observers raising doubts as to whether it would happen at all. But by clinching the deal, Boeing has infused new hope into the program.
What makes the order special is Boeing's smart thinking. United Airlines was planning fleet changes, and Boeing made use of the opportunity by offering the airline ten 777-300ERs (extended range) in place of ten 787-9s that had been ordered. The 787 is a coveted bird with a really long queue (seven years of backlog), so the swap allowed Boeing to free up some of the slots.
This, in turn, helped Boeing fulfill Hainan Airlines' order for thirty 787-9s to be delivered by 2021. As fellow Fool Adam Levine-Weinberg wrote, Boeing could have gotten a better deal by remarketing the 787s to Hainan.
It's not hard to believe Boeing could enable more such swap deals in the future, which would benefit both the 777 and 787 programs.
Then in May, there was the Swiss International Air Lines order for three additional 777-300ERs. These three will add to the airline's 2013 order for six of the planes.
The 777-300ER improves upon the classic
Boeing is making improvements to the 777 classic. In March, the company came out with its 777 upgrade plan -- a 2% reduction in fuel burn, the option of adding up to 14 seats that will cut fuel burn per seat by 5%, and structural and aerodynamic improvements will be among various changes made to the current 777-300ER by the end of 2016.
The 777-300ER's capacity of 386 seats and extended range of 7,825 nautical miles caters to long, crowded routes, and it's been the favored plane of airlines across the globe. With the improvements, Boeing is expecting to generate a healthy flow of orders.
At the 2015 Paris Air Show, starting on June 15, Boeing might just pleasantly surprise investors by announcing more 777 orders.
Foolish last words
Fears of a production halt are not totally out of place, but Boeing sounds pretty confident that it won't happen. The company has so far walked the walk with clever tactics like the United Airlines order. While it works out more such deals, Boeing is making the 777-300ER bigger and better.
The 777 may still have some life left in it yet.