Boeing Ramps Up Production as Travelers Return to the Skies

An anticipated rebound in airline travel has prompted Boeing (BA), the world's second-largest aircraft maker behind Airbus, to ramp up its production of 777 and 747 jets.

The company reported Friday that it sees airlines recovering this year, and expects the industry to be back in the black -- and looking to expand with new planes -- by 2011

To be prepared, the Chicago-based jet maker has accelerated plans to boost production of the fuel-efficient, wide-body 777 from early 2012 to the middle of next year. At that point, Boeing expects to build seven 777 jets each month, up from five per month now.

Boeing also will increase production of an updated version of the 747 workhorse jumbo jet. The redesigned 747, designed to carry 400 passengers, has been delayed for more than a year due to production problems. It's scheduled to roll off production lines in the middle of next year, and Boeing now plans to make two of those planes a month by mid-2012, instead of mid-2013.

The company calls the schedule a "conservatively managed approach to production."

Passengers Return to the Skies

The move follows signs of an overall economic recovery and passengers' return to the skies. The International Air Transport Association (IATA) last week reported an increase in air travel, good news for the airline industry, and predicted a 5.6% rise in passenger demand this year, compared to a 2.9% decline last year.

Steve Lott, spokesman for the IATA, said Friday the airline industry is coming off its worst slump in history. As the global economy recovers, airlines also will start to rebound, he said. But he cautioned that inflated airline ticket prices, based on volatile airline fuel prices, could slow the industry down.

"It's a slow recovery, and Boeing is moving forward cautiously," Lott said. The association still predicts U.S. airlines will lose $2.8 billion this year, but that's a significantly smaller loss than its December forecast of $5.6 billion.

The announcement helped the company's stock reach its 52-week high during trading Friday. An upgrade from UBS analyst David Strauss last week, based on an encouraging outlook for the company, also helped.

Competition Coming for Air Tanker Contract?

In related news, Boeing's chances of being the only bidder for the U.S. Defense Department's $35 billion air tanker contract eroded slightly as Airbus parent European Aeronautic Defense and Space, or EADS, said it is reviewing the possibility of putting in a new bid.

In its statement, EADS said it still has some concerns about the request for proposals to replace the fleet of KC-135 tankers, namely that it favors "a smaller, less capable aircraft, and that the additional combat capability offered by our system may not be fully valued." The company is requesting that the Defense Department delay the deadline for submitting a proposal.

The process of bidding for the air tankers began in 2002, when the Pentagon decided to replace its fleet. Boeing won the first round of bidding, but the contract was canceled. Then EADS, in partnership with Northrop Grumman, won a second bid, then abandoned it as well.

The Pentagon said it is reviewing the EADS' latest request and that it "remains committed to a fair and open competition and welcomes proposals from all qualified offerors."