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Boeing’s flying cash machine debuts as Lion takes first 737 Max

LiveMint logoLiveMint 17-05-2017 Julie Johnsson

Chicago: Boeing Co. delivered the first 737 Max to the jetliner’s largest customer, Lion Mentari Airlines PT, a step toward reaping a cash bounty from the best-selling aircraft in company history.

The Tuesday hand-off to Lion’s Malaysia affiliate, Malindo Airways, was only one day later than first scheduled after the US planemaker quickly recovered from a possible engine manufacturing defect, which had grounded the fledgling Max fleet last week. Before that hiccup, the upgraded 737 had coasted through development and flight-testing months ahead of schedule—a rarity in an industry where delays are common.

The 737 and Airbus SE’s A320 family are the sturdy workhorses for budget carriers worldwide, built to withstand multiple short flights a day. And thanks to manufacturing scale and processes honed over decades, they are the biggest profit generators for the planemakers, one reason why investors have closely watched the progress of the latest Boeing single-aisle jet so closely.

The Max “is the most important program at Boeing both now and in the future,” said George Ferguson, senior air transport analyst with Bloomberg Intelligence. “It is the cash generator and they can’t screw it up.”

Boeing is counting on smooth sailing for the 737 Max, the newest member of the jet family dating back about fifty years. That is essential if the Chicago-based company is to make good on the cash it has promised to return to investors as production slows for the 777, the second-largest source of profit, ahead of a transition to a new model.

Net orders

The Max family had netted 3,714 orders through the end of April, with the bulk of sales coming from the midsize -8. That jet, the first to debut, promises 8 percent lower operating costs than Airbus’s A320neo jets from upgrades that include new fuel-efficient engines and winglets.

To convert that order backlog to cash, Boeing is speeding output at the Renton, Washington, factory where the jets are manufactured by 12% this year to a 47-jet monthly pace. Additional step-ups are planned for 2018 and 2019.

If all goes to plan, current-generation 737 planes and the Max will generate about $25 billion in revenue this year, about 27% of the company total, according to Ferguson. He estimates Boeing will reap about $4 billion in operating profit from the single-aisle jets in 2017, 43% of its total.

“This airline will change the face of the single-aisle market,” Kevin McAllister, chief executive officer of Boeing’s commercial airplanes division, said in a statement Tuesday.

The manufacturer plans to roll out three other models in addition to the Max 8 headed to Malindo at a pace of about one a year. And the company’s salesforce is working to find customers for a possible stretched model, the Max 10, ahead of a possible debut in Paris next month.

Malindo, whose name is derived from the country names of Malaysia and Indonesia, will be the first airline to fly the 737 Max commercially. The carrier is owned by Malaysia’s National Aerospace and Defence Industries and Lion Air. Its Indonesia-based parent announced a 201-plane order for the Max in early 2012.

Southwest Airlines, which placed the initial order for the newest 737 in late 2011, is due to take its first delivery in July, about two months earlier than expected. The Dallas-based carrier plans to start commercial flights with the Max on 1 October, after retiring the oldest planes in its fleet. Bloomberg

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