Boeing says China and cheap oil haven't hurt demand as its stock gets pummeled
Boeing announced that its projected 2016 revenue of US$93 to US$95 billion will miss analyst expectations of US$97.3 billion.
Boeing stock closed down 9% on Wednesday after the company announced that its projected 2016 revenue of US$93 to US$95 billion will miss analyst expectations of US$97.3 billion.
Shares of the airplane maker took a beating thanks to concerns that a slowdown in the global economy and cheap oil would stifle future growth.
Over the past decade, airplane makers such as Boeing have profited heavily on demand from developing markets and airlines' need to upgrade their aircraft to newer, more fuel-efficient models.
As a result Boeing is now sitting on a 7-year order backlog consisting of 5,800 jets, valued at US$432 billion.
However, economic growth in markets like China have slowed significantly, and there are questions as to how many more airliners they'll require.
Additionally, over the past year, the price of oil was cut in half and is now hovering at around US$30 a barrel.
With airlines saving billions of dollars a year on their most significant expense, there are worries that cheap oil will lead to a slowdown of new airplane sales.
During the company's investors call today, Boeing executives worked hard to assure anyone listening that things are just fine.
According to Boeing, the Chinese market is currently underserved by at least 1,000 jets and will require as many as 6,000 aircraft over the next 20 years.
Further, company executives indicated that cheap oil won't hurt demand for aircraft either. According to Boeing, airlines tell the company that the additional new planes are needed in order for airlines to grow their networks, and has less to do with replacing models that aren't fuel efficient.
Boeing executives claimed that 60% of new jets will be used for expansion of services while 40% will go towards replacing aging aircraft.
The company also announced it will up the rate of production for the narrow-body 737 airliner from 42 aircraft per month to 57 by 2019.
"We continue to see a fundamental strength in the marketplace in the narrow body jets and strong long-term passenger growth at 7% across the world," a company executive said.
Boeing cited a rush of recent orders for the jet as validation for their decision. China Southern, United and Southwest have all placed orders for the 737 within the past several weeks. Combined, the three airlines signed up for more than 180 Boeing 737s.
Last week, Boeing announced that it will be slowing down the rate of production for its 747-8 jumbo jet from one per month to one every two months. The company cited sluggish demand in the commercial cargo industry as the reasoning behind its decision. Boeing also announced that it will take a US$569 million loss as a result of the production slowdown.
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