Boeing cuts 747-8 production rate

Boeing yesterday announced yet another cut in the production rate of its 747-8.

The manufacturer said that in addition to its previously announced reduction of 747-8 production to one unit per month in March of this year, it would further cut the rate to 0.5 units per month (six per year) in September – and take an $885 million charge ($569 million after tax) “to account for the market and production impacts” of the cut.

No surprise that Boeing (or any manufacturer) would choose to slow production of an aircraft type that was not selling well, but what is surprising is that Boeing pointed to slow air freight demand growth as the reason for the cut, saying: “Global air passenger traffic growth and airplane demand remain strong, but the air cargo market recovery that began in late 2013 has stalled in recent months and slowed demand for the 747-8 Freighter.”

This is an odd way to look at the overall problem the manufacturer faces. It is true that there was little growth in demand for air freight last year (see yesterday’s post on December and full-year traffic), but there has been no shortage of orders for the 747-8 Freighter – Boeing booked twenty-four 747-8F orders and commitments in 2015, and the freighter backlog now stands at twenty-five units.

In fact, it is the passenger variant that is getting no orders. The last 747-8 pax order was booked in 2013, and with the Transaero bankruptcy last year, Boeing actually lost four 747-8 pax orders.

Yes, a backlog of twenty-five 747-8F orders and commitments is not anything like the firm orders for fifty-one 777Fs and eighty-one 767-300Fs in Boeing’s backlog, but the freighter side of the 747-8 program is nonetheless much healthier than it was a year ago. Also worth noting is that of the eight airlines that have ordered 747-8Fs, all but one (Saudia) have increased their original orders. Even NCA’s cancellation of four orders left it with ten – two more than its original eight.

In summary, the freighter variant of the 747-8, while hardly the best-selling freighter in Boeing’s history, has done, and continues to do, moderately well. However, even if the air freight market returns to growth and 747-8F orders pick up, the freighter variant cannot, by itself, sustain the 747-8 program. In our view, therefore, the decision to cut the 747-8 production rate had little to do with the state of the air freight market and everything to do with the prospects for more orders for the passenger variant, the 747-8I.

This is no different from any other major aircraft program. Neither Boeing nor Airbus can successfully offer an aircraft program based entirely, or almost entirely, on a freighter, but to point the finger at a weak air cargo market as the reason for cutting production and taking an almost billion dollar charge seems odd when 747-8 freighters are outselling the passenger version both in terms of recent orders, and orders over the life of the program.

For a much more detailed analysis of the problems and prospects for the 747-8, see our ten-year 747-8 retrospective, published last November.