Boeing to cut production of 747

Boeing Co. said it plans to halve production rates of its 747-8 plane later this year, the latest step in the decline of the iconic jumbo jet and a fresh signal of persistent weakness in the global air-freight market, the Wall Street Journal reported.

The aerospace giant on Thursday said that it would shift in September to producing the jet at a rate of just six a year. As a result of the change, it will recognize an after-tax charge of $569 million against its fourth-quarter results, which it is scheduled to report on Wednesday.

Nicknamed the “queen of the skies,” the 747 has been in continuous production since the mid-1960s in various models. But the four-engine 747 has long since fallen out of favor among buyers of new jets for passenger travel, which prefer smaller, more fuel-efficient two-engine aircraft. That has left Boeing heavily reliant on the air-cargo market, which has struggled to escape a slump in recent years in part because of sluggish growth in international trade.

Global air-freight yields, measuring dollars generated for a given carried weight, are currently at levels below those in 2009 during the global economic downturn, according to the International Air Transport Association. Boeing said air freight contracted during November, with volumes declining by 1.2% compared with the same period a year earlier. Global passenger air travel, by contrast, the company noted, grew at 5.9% during the same period.

“Global air passenger traffic growth and airplane demand remain strong, but the air cargo market recovery that began in late 2013 has stalled in recent months and slowed demand for the 747-8 freighter,” Ray Conner, head of Boeing’s commercial airplanes division, said in a statement.

The 747-8 version, which has passenger and freighter versions, boasts updated aerodynamics, a new engine and a longer body than previous versions to hold more passengers and cargo. Boeing introduced the 747-8 freighter into service in 2011, after a development plagued by design changes and other problems that forced Boeing to record charges totaling more than $2 billion on the program.

The dearth of new orders, though, left the company with just 20 remaining orders for the plane as of Dec. 31. The U.S. Defense Department said it had selected the 747-8 as part of an initial plan to replace a pair of heavily-modified 747-200 jets that are used as the presidential transport known as Air Force One. The Pentagon has yet to confirm its order with Boeing.

The company was left with unclaimed 747 passenger jets in 2015 after No. 2 Russian airline Transaero ceased operations, leaving unpainted jumbos left in long-term storage on Boeing property in Everett, Wash. The airline had four on order. Rival Airbus Group SE has faced similar slack demand for its biggest jetliner, the Airbus A380.

Boeing was producing two 747s a month after the plane’s introduction, but later cut that to 1.75 a month, then 1.5, then, in September, 1.3. It previously had said the rate would fall to one a month starting in March. The latest move will take the rate to 0.5 a month six months later.

Boeing has sought to streamline operations at its Washington state factories, reducing the amount of time and cost it takes to build each 747 airplane. Boeing executives last year said it was able to profitably produce the jumbo at a rate of one each month. The latest reduction and charge to its earnings recognized that the company could no longer build the 747 profitably at its newly revised rate.

The new charge for the 747, which amounts to $885 million on a pretax basis, is accounted for as part the operating profit of its commercial airplanes unit. The company said the charge would have no effect on 2015 revenue or cash.