EXCLUSIVE-Boeing tests suppliers on 787 output hikes -sources

By Eric M. Johnson, Francesca Landini and Tim Hepher

March 11 (Reuters) - Boeing Co <BA.N> is yet to see any respite from a freeze in deliveries of its 787 Dreamliner - but that has not stopped it testing suppliers' capacity to meet output scenarios as high as seven a month by end-2023, three people with knowledge of the matter said.

The planemaker has stopped making public predictions on when it will win approval from U.S. regulators to resume deliveries, halted for nearly a year by factory defects in a still-running saga that is costing $5.5 billion overall. [nL1N2KV313]

But, the people said, it has discussed what some analysts consider ambitious scenarios with parts makers as it surveys an industry crippled by successive crises and now facing labor and materials shortages deepened by Russia's invasion of Ukraine.

Boeing's production strategy hinges on several key unknowns including when deliveries restart, how quickly it can reduce an overhang of more than 100 undelivered 787s and the extent to which the Ukraine crisis dampens already weak demand.

While some industry sources have pegged a delivery restart as early as next month, the date is increasingly under scrutiny with April just days away. [nL4N2U62HC]

Boeing's recovery plan could see it increase the current rock-bottom monthly rate of two 787s to three around May, if deliveries have started by then, and again to four around November, two of the people said.

From there, suppliers have been asked to be ready to tackle rates as high as seven a month around October 2023, if requested, the sources added.

That is more than most analysts reckon the market will absorb and the sources stressed no decision has been made on what, for now, remains purely a planning scenario.

The more Boeing produces the harder it may be to shift the backlog of undelivered planes.

Jefferies analyst Sheila Kahyaoglu this week estimated monthly output would stay at two in 2022, rising to 3.5 in 2023 but remaining below 5 "to facilitate the burndown of inventory".

"April delivery restart may be aggressive," Kahyaoglu added.

Boeing has repeatedly referred questions on the timing to the U.S. Federal Aviation Administration, which did not immediately respond to a request for comment.

Boeing declined comment on the supplier targets and pointed to comments in January when it said the 787 program remained at a low rate, with an expected gradual return to five a month.

Planemakers frequently test scenarios to keep the supply chain in battle mode ready for the next phase of competition.

"We will run our rate as low as we can while we burn our inventory as fast as we can," Chief Executive Dave Calhoun said in January, adding Boeing would monitor rates as demand grows.

RAMP-UP

The industry has meanwhile received mixed signals on demand for wide-body jets which had peaked well before the pandemic.

Boeing has said it sees a full recovery in airline traffic that underpins plane sales by the end of 2024.

But it has given what appears to be cautious guidance to one supplier, saying that production for major 787 parts could reach pre-pandemic levels by 2026-2027, one industry source said.

Forecasts for the second half of the decade are still at a very preliminary stage, analysts say.

"Overall, our projections for the three-phase commercial market recovery remain unchanged, and we still assume passenger traffic will return to 2019 levels in the 2023 to 2024 timeframe," a Boeing spokesperson said.

Italy's Leonardo <LDOF.MI>, which builds two fuselage sections for the 787 in southern Italy, said on Friday it plans to deliver just over 30 pairs of sections to Boeing this year, up from 28 last year. [nR1N2UM01B]

Before the pandemic, Boeing was building around 12 of the carbon-composite jets per month, a rate dragged down partially by China-U.S. trade tensions. [nL1N2KV313]

Last month, the U.S. FAA revoked Boeing's ability to self-certify newly built 787 aircraft ahead of delivery, raising another potential hurdle to Boeing's plans. [nL1N2UQ1UB]

Asked in January whether 787 deliveries would resume in April, Calhoun said, "That's up to the FAA, and we're going to let them do what they have to do."

(Reporting by Eric M. Johnson in Seattle, Francesca Landini in Milan and Tim Hepher in Paris; Editing by Frank Jack Daniel)

((Eric.m.johnson@thomsonreuters.com; +1 206 707 1218; Follow me on Twitter @ByEricMJohnson;))