Boeing has decided to cut 777 production rates to five aircraft a month in August 2017, a move the company expects will result in the loss of a still undetermined number of jobs and a “modest” effect on financial results this year. The company sent a message to employees on Monday explaining the decision.
Now building 8.3 of the twin-engine widebodies per month, Boeing had already announced a rate reduction to seven next year to compensate for weakening demand for the legacy 777 as the company prepares to transition production to the new 777X. A production rate of five per month effectively translates into a delivery rate of 3.5 as Boeing institutes plans to “fire blanks” down the line as part of its “Lean” implementation and dedicate some airplanes to 777X flight testing.
“Market demand drives production rates both to the upside and the downside. And the market is signaling near-term hesitation in some regions,” wrote 777 program vice president and general manager Elizabeth Lund. “Despite tireless work by the sales team, orders have slowed. This is due in part to several ongoing twin-aisle campaigns that haven’t concluded in time to keep the rate steady. Therefore we must adjust accordingly to ensure we are running a healthy business and the production line remains stable.”
Lund said Boeing had already considered plans announced yesterday to start deliveries of fifteen 777-300ERs and fifteen 777-9s to Iran Air in 2018 in its assessment over whether or not to cut rates again.
“Our sales team will continue their tireless work to fill existing openings in our skyline at the five airplanes per month production rate,” continued Lund. “The 777 program does expect some impact on employment next year. While the exact number of affected positions has not been determined, we will do our best to lessen the impact.”
The announcement comes some six weeks after Boeing CEO Dennis Muilenburg again raised the prospect of a decrease in 777 delivery rates in reaction to continuing market “hesitation,” notwithstanding October’s deal with Qatar Airways and that raised this year’s net order count for the existing 777-300ER from six to 16.
Although at the time Muilenburg said the company did not intend to lower rates below 3.5, Lund stressed the need to cut costs across the program to minimize the effect of the softening market.
“We have an opportunity to assist in offsetting these current market realities by continuing to work aggressively to reduce costs across our program,” she wrote in Monday’s letter to employees. “Every initiative and project to drive down the cost to produce this great airplane will help. Being competitive will allow us to bridge sales to the 777X – both near term and in the out years.”