Boeing Flies Lower: Commercial Aircraft Orders Descend 16%
The drop in orders may seem like strange news considering that air traffic, which drives the demand for new aircraft, is growing faster than expected. Forecasts for air traffic growth have been increasing during the first few months of 2010 -- from 3.5% in January, to 4% in February and 4.2% in March. By the end of 2010, traffic growth may be as high as 6%, according to seattlepi.com's Aerospace News.
Why Orders Are Falling
One big reason is the backlog of planes that were built -- and left unused -- when air travel dropped off. There are still too many aircraft out there to warrant new order growth, and that's likely to remain true for the next six to 12 months.
So why is Boeing accelerating its plans to ramp up production, as it announced in March? Well, the company expects accelerating air traffic will suck up the excess aircraft by 2011 or 2012. Randy Tinseth, vice president of marketing for Boeing Commercial Airplanes, told The Wall Street Journal that he expects demand for airplanes to grow in 2012 and beyond after airlines return to profitability in 2011.
And Boeing cut its production so much in 2009 that it is now finding itself having to boost production sooner than expected to meet the anticipated 2011 demand. For example, the company plans to start making seven 777 airplanes per month, up from five airplanes per month now, starting in mid-2011 instead of early 2012.
If the airline recovery flies smoothly, Boeing is probably right in expecting demand for aircraft to take off in 2012. But if air travel climbs faster than expected, the turning point could be even earlier.