Source: PaxForex Premium Analytics Portal, Fundamental Insight

Just a couple of years ago, Boeing was producing 14 787 Dreamliner jets a month, a record speed for a wide-body aircraft. But the COVID-19 pandemic has undermined demand, making the aerospace giant cut production to just five planes a month.

At a recent conference, CEO Dave Calhoun said that BA would eventually return to pre-pandemic Dreamliner production rates. That forecast is doubtful to come true, however, because long-haul flights will improve gradually from the COVID-19 and narrow-body aircraft will serve an increasing portion of long-haul demand.

Before the pandemic, production of the 787 Dreamliner was split evenly between the Everett, WA, and North Charleston, SC, plants. Boeing decided to stop assembling the 787 in Everett because of the drastic drop in production.

Beginning in March, the company moved all final assembly to the North Charleston plant.

Many investors wondered what the move indicated for future production plans.

After all, at its peak, the North Charleston plant was only producing seven Model 787s a month. At a recent conference hosted by Bernstein Research, Calhoun said Boeing would get Dreamliner production back on track even with only one final assembly plant.

The Boeing CEO warned that it would take years. However, he stressed that -- with careful planning -- the South Carolina plant has enough space to produce 14 Dreamliners a month in the future.

Plant space will not be the biggest problem for Boeing in getting back to the pace of producing 14 Dreamliners a month. Demand simply won't be able to support that level of production for the next decade.

First, Boeing should not count on replacement demand to boost 787 production growth. Between 1995 and 2011, Boeing delivered fewer than 1,600 widebody passenger aircraft: an average of about 93 aircraft per year. (Those years of production roughly correspond to the wide-body aircraft to be scrapped over the next 15 years.)

Even if Boeing doesn't cede any of these wide-body aircraft to Airbus for replacement, that would only support the production of about five 787s per month on average. (That's assuming the 777X takes up to a third of Boeing's replacement volume.) Consequently, a return to a production rate of 14 aircraft per month - or close to it - would require airlines to buy large numbers of wide-body aircraft to grow.

Several years ago, airlines employed most of their new 787s for growth on long-haul routes. That included a lot of unsustainable growth. Norwegian Air, for example, has built a fleet of more than three dozen Dreamliners over the past decade. It has never made a profit on long-haul flights and recently got rid of all of its 787s. Many other Dreamliner customers have scaled back their long-haul ambitions.

This reduction started even before the pandemic began. As a result, by January 2020, Boeing declared two cuts in Dreamliner production, which would have reduced production from 14 planes a month to 10 planes a month by early 2021.

Of course, the coronavirus outbreak brought even bigger cuts.

Eventually, long-haul flights should return to growth and surpass pre-pandemic levels within about three years. However, the growth rate will be lower than a few years ago, as airlines focus more on profitability than growth. A leading international aviation industry trade group estimates that the pandemic has permanently wiped out two years of industry growth.

Finally, the Airbus A321XLR - and a potential new Boeing aircraft - will stifle both growth and demand for replacement wide-body 787s over the next decade.

The A321XLR will be able to serve a huge range of markets that were previously only available to wide-body aircraft but at a much lower cost of the flight.

A number of global airlines, such as American Airlines and United Airlines, have placed large orders for the A321XLR. Many of these aircraft will replace the narrow-body Boeing 757s used on longer routes, but some will replace smaller wide-body aircraft such as the 767. Others may open new routes. Either way, the A321XLR will intercept sales from smaller, next-generation wide-body aircraft such as the 787 Dreamliner.

In short, the replacement market can only support today's depressed 787 production levels. And since airlines are likely to increase their widebody fleets at a moderate pace over the next decade, that leaves Boeing with little chance of maintaining the 787 production rate at 14 per month for the next decade.

While the price is above 236.90, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 247.28
• Take Profit 1: 264.90
• Take Profit 2:271.70

Alternative scenario:

If the level 236.90 is broken-down, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 236.90
• Take Profit 1: 225.60
• Take Profit 2: 219.00