Boeing announced Thursday that it will cut its production rate on the 747-8 program in half starting in September, from one airplane a month to 0.5. Plans already call for rates to drop from 1.3 per month to one per month starting this March. Boeing said the decision centers on a need to match supply with near-term demand in the cargo market. To account for the market and production effects, the company added that it will recognize a $569 million after-tax charge when it announces financial results for the fourth quarter of 2015 on January 27. The earnings charge will not affect 2015 revenue or cash flow, it said.
“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,” said Boeing Commercial Airplanes CEO Ray Conner. “While we remain confident in the 747-8’s unique value proposition and an upcoming replacement cycle for late-model 747-400 Freighters, we're taking the prudent step to further align production with current market requirements.”
Most recent air transport industry data show that air freight activity contracted in November, shrinking volumes by 1.2 percent compared with the same time a year ago. Meanwhile, global passenger demand grew at 5.9 percent, above the 10-year average rate, according to the International Air Transport Association (IATA).
“We are closely monitoring the air cargo market as we work to win additional orders to support ongoing future production,” said Boeing CFO Greg Smith. “At the same time, we continue to aggressively drive productivity to lower costs across our production system to offset the current market challenges.”