Boeing cuts 737 jet output 19% as global groundings drain cash

Bloomberg

Boeing Co is cutting production of its 737 jetliner for the first time since the September 11 attacks as the planemaker works to limit financial damage from the global grounding of its newest and best-selling aircraft model.
By slashing output 19 percent — 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 Holdings Inc, indicated they would continue full-tilt at the current record pace.
Boeing Chief Executive Officer Dennis Muilenburg outlined the plan as the company ramps up efforts to restore public confidence in the 737 Max and the planemaker’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 in a statement after the close of regular trading. “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 $3.6 billion 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 aren’t able to take delivery because of the grounding.
Before the Lion Air and Ethiopian Airlines crashes, Boeing had planned to raise output of the 737, a workhorse for budget carriers, about 10 percent by midyear. The reversal squeezes suppliers who’d hired workers and invested to expand capacity. Some had already started moving towards 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 doesn’t 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 focusses on aerospace and defense 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 last year. 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.