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737 replacement depends on 787 commercial success

To pay for a massive new development programme - its design and its industrialisation - Boeing must make its current clean-sheet 787 profitable, before it sets out on the next.

Both UBS Investment Research and Bernstein have recently published reports raising questions about the pace of achieving profitability on the 787, recognising the contractually established supplier costs coupled with the low locked-in aircraft sale price over more than 800 aircraft.

UBS's David Strauss predicts "flat to progressively worse 787 cashflow over the next several years" as the production system comes down the learning curve, coupled with prices that make the 787, says Doug Harned of Berstein Research, a "victim of its own success. With 787 production sold out until 2019, pricing is largely fixed at prices we believe were set too low in the beginning."

And Boeing Commercial Airplanes vice-president of business development and strategic integration Nicole Piasecki said: "At this point our product development investment decisions are assuming success and progress and momentum on all of that so we're not constraining our thinking around that.

"But as you and I can imagine, if we're a board member and the company isn't executing on what it needs to, there are going to be some questions around it. We have to be accountable for getting to profitability on the 787 and the 747-8, no question about it, top priority."

As Boeing brings into focus the considerations around the cost of making another big leap, the benefits of incrementally improving the 737, weighed against the development requirements for the 787-9 and -10, as well as crafting a more comprehensive competitive response to the Airbus A350, may point to re-engining the 737 as the constrained path forward.

"There are trade-offs, I think the re-engine is a very, very attractive option," said Piasecki. "From a perspective - if you're looking for minimal disruption to the industry, maximum flexibility to make a move on the 777, and those are all the sorts of things that we're thinking about as we move through this decision."

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