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Halt or Curb 737 Max Production? Boeing Faces Difficult Decision Boeing to Temporarily Shut Down 737 Max Production
(about 1 hour later)
Boeing is moving closer to a decision to further reduce production of its 737 Max planes or bring the factory to a temporary halt as it grapples with the relentless fallout from two deadly crashes that have left the jet grounded for nine months. Boeing said on Monday that it would stop making the 737 Max in January as it continues to grapple with fallout from two crashes that killed 346 people.
A shutdown of the Max line would send shocks through the American economy, affecting suppliers around the country and plunging the company deeper into crisis after the two accidents, which killed 346 people. Boeing’s decision to temporarily halt production is likely to send shocks through the American economy. It will affect suppliers around the country and plunge the company deeper into crisis.
Boeing is America’s largest manufacturing exporter and the largest component of the Dow Jones industrial average. The 737 Max is its most important product, representing tens of billions of dollars in annual sales. The 737 Max, which is produced in Boeing’s factory in Renton, Wash., is the company’s most important aircraft, representing tens of billions of dollars in annual sales. It has been grounded for nine months, since shortly after the second accident.
Yet with global regulators still blocking the planes’ return to service, executives and board members are approaching what will be one of the most consequential decisions in the manufacturer’s more than 100-year history. With the company still unable to win approval from global regulators to let the plane fly again, executives and board members have made, in halting production, one of the most consequential decisions in the manufacturer’s more than 100-year history.
Boeing’s board was in Chicago on Monday for a scheduled meeting, and is consulting with senior leaders at the company before they make a final decision, according to four people with knowledge of the deliberations. An announcement is likely to be made Monday afternoon or Tuesday morning, the people said, speaking on the condition they not be identified because the discussions were still private. “This decision is driven by a number of factors, including the extension of certification into 2020, the uncertainty about the timing and conditions of return to service and global training approvals, and the importance of ensuring that we can prioritize the delivery of stored aircraft,” the company said in a statement. “We will continue to assess our progress towards return to service milestones and make determinations about resuming production and deliveries accordingly.”
The most likely possibility, one person familiar with the matter said, is that Boeing will pause production of the Max for an initial 60-day period. Boeing said it intended to redeploy the workers building the Max to other projects, avoiding layoffs or furloughs for the time being.
Should Boeing follow that plan, the company intends to redeploy the thousands of workers building the Max to other projects, avoiding layoffs or furloughs for now, two people with knowledge of the matter said. Boeing is America’s largest manufacturing exporter and the largest component of the Dow Jones industrial average. It will try to manage the disruption to suppliers, though it did not give details. It may continue to accept parts from major suppliers, so that when the company restarts the Max line, those contractors are able to quickly ramp up production. Others are likely to endure significant financial pain if Boeing’s shutdown halts part of their assembly line for a period of months.
The fact that the company is considering shutting down the factory “emphasizes the uncertainty of getting Max back in the air,” Jonathan Raviv, an analyst at Citi, wrote in a note on Monday. “Our objective continues to be ensuring supply chain health and production system stability, including the preparedness for seamless transition in the future,” a Boeing spokesman, Gordon Johndroe, said in a statement.
More than nine months after the Max was grounded, Boeing continues to encounter hurdles with the Federal Aviation Administration and other global regulators as it works to return the plane to service. The delays have varied from the technical to the procedural, and have now made it likely that the Max will be grounded for a full year, if not longer. Shares of Spirit AeroSystems, which makes the fuselage of the Max, fell nearly 2 percent on Monday. Boeing’s shares were down more than 4 percent.
Boeing is also trying to figure out how it would handle the disruption to suppliers. It may continue to accept parts from major suppliers, so that when the company restarts the Max line, those contractors are able to quickly ramp up production. Others are likely to endure significant financial pain if Boeing’s shutdown halts part of their assembly line for a period of months.
Shares of Spirit AeroSystems, which makes the fuselage of the Max, were down about 4 percent in early trading on Monday. Boeing’s shares were down more than 3 percent.
“It will have enormous ripple effects,” said Susan Houseman, director of research for the Upjohn Institute for Employment Research. “It will have very real effects on many people’s lives, and it’s never good for this to happen right before the holidays.”“It will have enormous ripple effects,” said Susan Houseman, director of research for the Upjohn Institute for Employment Research. “It will have very real effects on many people’s lives, and it’s never good for this to happen right before the holidays.”
But because Boeing is not planning significant layoffs and its suppliers are distributed around the country, Ms. Houseman said the overall effect on the broader economy would most likely be muted for now.But because Boeing is not planning significant layoffs and its suppliers are distributed around the country, Ms. Houseman said the overall effect on the broader economy would most likely be muted for now.
It is still possible Boeing will simply curb production further instead of shutting down the factory. In April, the company said it would reduce the number of 737 planes it produced each month to 42 from 52. A further reduction would keep the line operational, avoiding the complex process of restarting it months from now. Boeing had already reduced production at the factory after the crashes, which killed 346 people. In April, the company said it would reduce the number of 737 planes it produced each month to 42 from 52. It was not clear how long the Max factory will be shut down. The decision as to when production would resume will be based on the decision by regulators to let the Max return to service.
“It’s an extremely difficult choice,” said Richard Aboulafia, vice president for analysis at Teal Group. “They are burning through a lot of cash by continuing production at 42 per month, but if they don’t maintain this rate it will be harder to recover and increase production.” The decision to halt production was first reported by The Wall Street Journal.
Boeing first suggested it might halt production of the Max in July. The company has already announced more than $8 billion in charges related to the crisis, a figure that is expected to rise significantly. Last week, Boeing reached a partial settlement with Southwest Airlines to compensate it for some of the costs it has incurred as a result of the protracted grounding of the Max. More than nine months after the Max was grounded, Boeing continues to encounter hurdles with the Federal Aviation Administration and other global regulators as it works to return the plane to service. The delays have varied from the technical to the procedural, and have now made it likely that the Max will be grounded for a full year, if not longer.
“Boeing still has credit lines and probably the ability to incur new debt,” said Scott Hamilton, managing director of the Leeham Company, an aviation consultancy. “Even so, at some point, Boeing — even with its financial resources — has to stop the cash bleeding.” As a result, Boeing has repeatedly pushed back the projected date of a return to service for the Max. Dennis A. Muilenburg, Boeing’s chief executive, said in October that he expected the planes to be approved this year. But last week, Stephen Dickson, the administrator of the Federal Aviation Administration, said the Max would not fly until 2020.
If Boeing does shut down the Max factory, in Renton, Wash., any decision on resuming production would be based on regulators’ clearing the Max to return to flying.
“We continue to work closely with the F.A.A. and global regulators towards certification and the safe return to service of the Max,” Gordon Johndroe, a Boeing spokesman, said in a statement. “We will continue to assess production decisions based on the timing and conditions of return to service, which will be based on regulatory approvals and may vary by jurisdiction.”
Boeing has repeatedly delayed its projection for when the Max will fly again. Dennis A. Muilenburg, Boeing’s chief executive, said in October he expected the planes to be approved this year. But last week, Stephen Dickson, the F.A.A. administrator, said the Max would not fly until 2020.
Southwest Airlines and United Airlines have postponed Max flights until March, while American Airlines has said it won’t fly the Max until April.Southwest Airlines and United Airlines have postponed Max flights until March, while American Airlines has said it won’t fly the Max until April.
Shutting down the line could help the company in some ways. Boeing has built nearly 400 Max jets that it has not yet delivered. Delivering all those jets will take at least a year, and reducing the backlog would simplify that process. It would also reduce the time the newly built planes sit idle. Shutting down the line rather than further reducing the rate of production could help the company. Boeing has built nearly 400 Max jets that it has not yet delivered. The process of delivering all those jets will take at least a year, and reducing the backlog would simplify that process. It would also reduce the time the newly built planes sit idle.
But the complex task of delivering its growing backlog was made more complicated last month, when the F.A.A. took control of issuing certificates of airworthiness for each airplane. That decision means Boeing won’t be able to deliver planes as quickly as it had hoped.But the complex task of delivering its growing backlog was made more complicated last month, when the F.A.A. took control of issuing certificates of airworthiness for each airplane. That decision means Boeing won’t be able to deliver planes as quickly as it had hoped.
“When deliveries resume, the market may not be able to take the new jets being built plus the ones built but not delivered,” Mr. Aboulafia said. “That’s an awful lot of capacity all at once.” The decision was “an extremely difficult choice,” said Richard Aboulafia, vice president for analysis at Teal Group. “They are burning through a lot of cash by continuing production at 42 per month, but if they don’t maintain this rate it will be harder to recover and increase production.”
Boeing first suggested it might halt production of the Max in July. The company has already announced more than $8 billion in charges related to the crisis, a figure that is expected to rise significantly. Last week, Boeing reached a partial settlement with Southwest Airlines to compensate it for some of the costs it has incurred as a result of the protracted grounding of the Max.
“Boeing still has credit lines and probably the ability to incur new debt,” said Scott Hamilton, managing director of the Leeham Company, an aviation consultancy. “Even so, at some point, Boeing — even with its financial resources — has to stop the cash bleeding.”