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Boeing Could Halt or Cut 737 Max Production Plan

Boeing mulls pausing Boeing 737 max production as the possibilities for regulatory clearance for the grounded plane’s comeback will probably happen after January 2020.

A decision is expected soon as Boeing’s directors are already reviewing the manufacturing plans for the 737 program, the company’s biggest source of cash.

Usually, the board would set the company’s dividend for the coming year and decide on its share repurchases. However, the latter was suspended while Boeing deals with the crisis prompted by the grounding.

In its email to investors the company noted:

“We continue to work closely with the FAA and global regulators towards certification and the safe return to service of the Max. 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.”

But let’s revise. There were two recent fatal crashes that killed 346 people. After the first tragedy that happened in October 2018, there was the second one in March, when the Ethiopian Airlines plane crashed, killing all 157 people on board. It led to the grounding of the entire 737 Max fleet. After that, Boeing cut 737 production by 19%. Inventory costs on the other hand grew to record levels as the company’s factory in Renton, Washington, continued to produce 42 of the jets a month.

Operating cash flow in the third quarter hit minus $2.42 billion, the worst result on that measure in a generation and below the weakest performance during the 2008 financial crisis.

That brings us to the situation in which the company has more than 380 newly built planes in storage. And the thing is if production is slowed down – the build-up continues. If it’s halted – it does not.

Boeing’s board is meeting after a heavy week for the company. FAA Administrator Steve Dickson scolded Boeing Chief Executive Officer Dennis Muilenburg in a December 12 meeting for pursuing an unrealistic schedule for Max’s return to service.

Boeing officials still didn’t reveal how they plan to manage through a shutdown especially regarding details like worker pay. But the idea is that employees would prefer the certainty of a surgical shutdown better than an open-ended period of slower production that could lead to layoffs.

Be it as it may, the making and servicing commercial airplanes account for about 80% of Boeing’s operating income, and the 737 series accounts for about 70% of commercial deliveries.

These days, Boeing stock is priced at around $333-341 which is quite comparable (and even better) with the prices that were observed 12 months ago – around $320. However, it is not the best result for the company. Even this year, in February its stock price was around $440 which was the best stock performance for Boeing.

Boeing Could Halt or Cut 737 Max Production Plan

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