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Boeing CEO sees shift to Max jets smoothing next 737 output bump

Chicago

BOEING Co's chief executive officer quashed speculation that the planemaker would postpone a 2019 production increase for its highly profitable 737 jets as it struggles to resolve manufacturing bottlenecks.

Bumping up output to a record pace of 57 jets a month next year will be easier since most of the aircraft assembled by then will be redesigned 737 Max models, up from 40 per cent to 45 per cent this year, Dennis Muilenburg said at a Morgan Stanley conference Wednesday.

"We're mid-stride on the model transition while we're doing rate ramp-up, and that adds a degree of complexity for all of our supply chain," the CEO said. "So I think that has made this rate step a little more difficult than some of the others, but we understand that."

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Boeing has been contending with a swell of unfinished jets awaiting engines, auxiliary power units and other parts since the planemaker and suppliers moved to a 52-jet pace in June. More than 50 of the aircraft have been parked around Boeing's 737 factory as mechanics tackle thousands of out-of-sequence jobs needed to make the planes airworthy and ready for delivery.

The faster pace has amplified the complexity of building current-generation and military 737s, along with three members of the Max family at the same time. Spirit AeroSystems Holdings Inc, which manufactures the narrow-body fuselages for Boeing, had cited the array of models as a source of stress and delays in its production system.

Deliveries of the 737, Boeing's biggest source of profit, recovered in August from a July nadir and will continue on the same pace in September before accelerating above the 52-jet production rate in the fourth quarter, Mr Muilenburg said. Boeing, he said, is "confident we've got our arms around it".

Boeing climbed 2.1 per cent to US$352.45 at 1.55pm in New York, the largest gain on the Dow Jones Industrial Average.

The shares got a boost after a Wall Street Journal report fuelled optimism that US trade talks with China will resume before the Trump administration imposes another round of tariffs.

About one-third of the 737s that Boeing produces are for Chinese customers, underscoring the stakes for the Chicago-based planemaker amid recent trade tensions. Both the US and China have reason not to upset the status quo, Mr Muilenburg said. The Chinese need Boeing aircraft for their rapidly expanding travel industry, he said.

"And if trade deficits are your concern, well, the biggest trade surplus we have in the US is aerospace," he said.

"And by far, the biggest portion of that surplus is in our business, in Boeing's business. So, we export about 80 per cent of what we build, and we build 90 per cent of it here in the US." BLOOMBERG