Boeing to slash output of 737 jetliner
Aircraft manufacturer seeks to limit financial damage from the grounding of its best-selling plane
Seattle — Boeing is cutting production of its 737 jetliner for the first time since the September 11 2001 attacks as the aircraft manufacturer works to limit financial damage from the global grounding of its newest and best-selling aircraft model.
By slashing ou Matput 19% to 42 airplanes a month by mid-April Boeing will be able to reduce its spending on the 737 and preserve cash.
As work slows in a Boeing factory south of Seattle, two key suppliers, CFM International and Spirit AeroSystems, indicated they would continue full tilt at the current record pace.
Boeing CEO Dennis Muilenburg outlined the plan on Friday as the company ramps up efforts to restore public confidence in the 737 Max and the plane maker’s commitment to safety after two of the aircraft crashed within five months.
Boeing is facing criminal and Congressional probes stemming from the disasters. To help quell concerns, the company’s board named a committee dedicated to reviewing the design and development of its aircraft.
“Safety is our responsibility and we own it,” Muilenburg said. “When the Max returns to the skies, we’ve promised our airline customers and their passengers and crews that it will be as safe as any airplane ever to fly.”
Even at the slower production pace, Boeing faces about $3.6bn in quarterly losses, said George Ferguson, an analyst with Bloomberg Intelligence. As it continues to build planes, the company is foregoing payments from customers who are not able to take delivery because of the grounding.
Before the Lion Air and Ethiopian Airlines crashes, Boeing had planned to raise of the 737, a workhorse for budget carriers, about 10% percent by mid-year.
The reversal squeezes suppliers who had hired workers and invested to expand capacity. Some had already started moving toward a 57-jet monthly pace under a carefully orchestrated schedule. Boeing will coordinate with customers and suppliers to blunt the financial impact of the slowdown, and for now does not plan to lay off workers from the 737 programme, Muilenburg said.
“It’s cash conservation,” said Stephen Perry, co-founder of Janes Capital Partners, an investment bank that focuses on aerospace and defence deals. A short-term slowdown could help Spirit AeroSystems and CFM work out supplier issues of their own, he said. Though “if it lasts longer, it’s problematic.”
Both CFM and Spirit AeroSystems were plagued by delays in 2018. The slowdown at Boeing will give them a chance to bolster the weak links in their own supply chains, Perry said. By continuing at full speed, the companies will be positioned to accelerate to an even higher rate, if needed, once Max deliveries resume, he said.
Maintaining the status quo will “help ensure the stability of the global CFM supply chain,” Jamie Jewell, a CFM spokeswoman, said.
Spirit AeroSystems, which makes the fuselages for the Max, said it plans to store the 737 fuselages and other components around its factories. “This staggered production approach allows us and our supply base to better prepare for and support 737 production,” said CEO Tom Gentile.
Boeing shares fell 2.4% to $382.69 in after-hours trading. The stock has declined 7.2% since the March 10 Ethiopian crash, the second-worst performance among the 30-member Dow Jones Industrial Average. Spirit Aero fell 1.9% to $87.97.
The plane maker does not rule out further cuts to production if the grounding proves to be lengthy. “We’ll continue to assess our production plan,” Boeing spokesman Chaz Bickers said.
Boeing’s announcement came a day after Ethiopian officials released a preliminary report on the latest Max accident, concluding that the jet experienced the same equipment failure as a Lion Air 737 that crashed off Indonesia in October. The two incidents killed a combined 346 people.
If regulators take their time in certifying the Max’s return to the skies, Boeing would be forced to stash hundreds of factory-fresh jets in airports across the western US until commercial flights resume.