Goldman Sachs forecasted that the Boeing Corporation needed to lessen its production of the Model 777 in 2018 as a number of holes in the delivery skyline was perceived.
An analyst from one of the leading global investment banks explained that Boeing has to cut the 777 production once again as the rate may go to five per month to four in 2018 and 2019 respectively.
Goldman Sachs thought that the delivery spots to be very uncommon as the company has 50 open delivery positions for the 777 aircraft in 2017 and 2018. Additionally, Boeing has 79 open delivery spots in 2014. Given the figures, the company can have an order-to-delivery lag in the next four years.
Before the announcement made by the Goldman Sachs, Boeing confirmed the 777 production rate would be moved to 7 per month from 8.3 next year to smooth 777X transition.
The demand for wide-body aircraft has been dragged lower by the varying consumption from airlines. Most of the developing countries prefer single-aisle aircraft over the wide ones as they seek for low cost carrier models. Therefore, the assumption of the bank can be right.
Goldman also mentioned that the demand equation for aircraft could worsen and the shares of the aircraft company are highly correlated to new aircraft orders. Boeing reported $1.2 billion in cash flows from operations in its recent quarterly financial report relatively higher than the $88 million acquired in the first quarter of 2015.
In relation to this, the larger aircrafts are undeniably costly than the smaller ones. Thus, limiting the production rate of 777 would affect the cash flow of the American based aircraft manufacturer.
“We have concern that the bull case on Boeing viewed the rate cut to 7 as de-risking the 777X transition; and that view, the cash flow argument, consensus estimates, and ultimately the stock, do not discount more 777 reductions and their large impact to EBIT and cash,” Goldman wrote further in their report.
Elsewhere, the Qatar Airways confirmed that it took delivery of 50th Boeing 777 with 180 single aisle and wide-body aircraft in operation. Approximately 35 percent of the airline’s route network is running with Boeing 777.
QA Group Chief Executive Akbar Al Baker expressed his thought regarding the addition to their fleet. “We place passenger comfort and the flying experience at the forefront of our aircraft programme, and with the introduction of the Boeing 777 into the fleet just under a decade ago, our crew and passengers have come to know how comfortable and spacious the cabins are,” the chief executive said.
During the session earlier, Boeing traded lower with a lost of 1.17 or 0.88 percent at $132.09. The multinational aircraft manufacturer opened at $132.80 with a session high of 133.81 and a session low of 131.82. Currently, it has a market capitalization of 84.89 billion and a price earnings ratio of 17.84.
Boeing has a 52-week high of $150.59 and a 52-week low of $102.10 while its 200-day moving average stands at $133.24 and its 50-day moving average is $131.14. The stock has a consensus price target of $148.25 and a consensus rating of Buy.