Boeing Weighs Cutting or Halting 737 MAX Production -- 2nd Update
December 15 2019 - 7:42PM
Dow Jones News
By Andrew Tangel, Andy Pasztor and Doug Cameron
Boeing Co. is considering either suspending or cutting back
production of the 737 MAX amid growing uncertainty over the
troubled plane's return to service and could disclose a decision as
soon as Monday, according to people familiar with the matter.
Boeing management increasingly sees pausing production as the
most viable among difficult options as the plane maker's board
began a meeting Sunday in Chicago, these people said. Support for
halting production comes days after U.S. regulators warned the
aerospace giant it had been setting unrealistic expectations for
when the jet would be allowed to fly again, these people said.
Cutting production further, following an earlier reduction in
April, would inflate Boeing's costs and trigger charges against its
financial results as fixed expenses would be spread among fewer
planes. It could also spur job cuts and furloughs across the global
aerospace industry, as well as further disruption to airlines hit
by the grounding of a fleet of around 800 jets that is likely to
stretch to nearly a year.
Global aviation regulators grounded the MAX in March following a
second fatal accident, in Ethiopia. That accident followed a MAX
crash less than five months earlier in Indonesia. The accidents
took a total of 346 lives.
Boeing said in October a production freeze or further cut could
be necessary if federal approval of MAX flight-control software
fixes and training changes extend into 2020.
The board deliberations, which were slated to last through
Monday, have taken on more urgency following a meeting last week
between Boeing Chief Executive Dennis Muilenburg and Federal
Aviation Administration chief Steve Dickson that reset the likely
timetable for certification to February or beyond, according to the
people familiar with the matter.
Boeing hadn't made a decision as of early Sunday, and some of
the people familiar with the matter stressed that production
changes weren't certain and that any management action would happen
in close consultation with the board.
Boeing signaled to U.S. aviation officials last week that it
anticipates a production-related announcement this week amounting
to at least a significant rollback of MAX output, one of these
people said.
No immediate employee layoffs were anticipated, this person
said, because of the previously scheduled closing of the 737
assembly plant in Renton, Wash., for the Christmas and New Year's
holidays. The holiday break typically lasts about two weeks.
Any MAX production changes could carry significant implications
for the U.S. economy. Boeing's inability to deliver the aircraft
during the prolonged grounding has already weighed on the nation's
trade deficit.
A Boeing spokesman said the company continues to work closely
with the FAA and global regulators on the MAX's safe return to
service, adding: "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 already taken a $3.6 billion charge to cover
additional production costs and has set aside $6.1 billion for
customer compensation.
The company cut 737 production by a fifth in April and shelved
plans to boost output this past summer, forcing suppliers to adjust
their own plans to deliver parts and supplies for a backlog of more
than 4,500 orders for the jet.
Any decision to recalibrate production highlights the complexity
of completing essential software testing that already has been
repeatedly delayed, winning backing from multiple global regulators
and preparing hundreds of planes for flight. Some U.S. airlines
have said that if the plane wins approval, they would take delivery
of their past orders as quickly as Boeing can fill them. Others
have said they would rather wait until air travel picks up again in
the spring, or even after the peak summer season.
The global MAX supply chain involves about 600 firms, plus
hundreds of smaller subcontractors. Boeing has been assisting them
through easing payment terms and extending working capital, said
companies involved in the chain.
Some suppliers said the furloughing of staff and stoppage to
machinery that would likely follow a halt would be more disruptive
than maintaining lower production while the plane is grounded.
"It's easier to ramp down gradually and then ramp back up," said
John Scannell, chief executive of Moog Inc., which makes control
motors for the MAX.
Most MAX suppliers had cut output in line with Boeing's current
42-plane-a-month rate, which allowed some such as engine maker CFM
International, a joint venture between General Electric Co. and
Safran SA, to catch up from production bottlenecks that hobbled
deliveries last year.
Boeing cut monthly output of the 737 to 42 from 52 last April.
Executives said in October that they hoped to resume deliveries in
the fourth quarter, and clear the backlog by the end of next year,
allowing it to resume its previous production plan. Some airline
and industry executives have said it could take two years. Boeing
had been planning to ramp up production to 57 planes a month by the
end of 2020.
Write to Andrew Tangel at Andrew.Tangel@wsj.com, Andy Pasztor at
andy.pasztor@wsj.com and Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
December 15, 2019 19:27 ET (00:27 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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