Boeing warns it may halt 737 Max output

Bloomberg

Boeing warned it will consider slowing or even temporarily halting production of 737 Max, the company’s most important jetliner, if a global flying ban drags on longer than anticipated.
The planemaker’s best estimate is that it will submit software updates and paperwork for the Max by September to the US Federal Aviation Administration (FAA), followed weeks later by approval to resume passenger flights, said CEO Dennis Muilenburg. But he cautioned that Boeing can’t foot the costs of building and storing undelivered aircraft indefinitely.
The company is studying a range of scenarios in case the timeline for returning the Max lags significantly. “Those alternatives could include different production rates, they could include a temporary shutdown,” Muilenburg said on an earnings call. “It’s not something we want to do, but an alternative that we have to prepare for.”
The 737 Max is already more than four months into an unprecedented global grounding, which authorities ordered after two fatal crashes. The manufacturer provided hints of the strain on its resources, starting with a $1.01 billion burn of free cash flow in the second quarter — a swing of more than $5 billion from last year’s gain during the same period.
“They have to prepare for any eventuality,” said George Ferguson, an analyst with Bloomberg Intelligence. A fourth-quarter restart for the Max remains the likeliest outcome, especially with FAA officials working onsite with Boeing toward a resolution, he said. “If something happens to extend that, they can’t just keep building planes.”
The shares fell 3.1 percent to $361.43 at the close of trading in New York, the second-biggest drop on the Dow Jones Industrial Average. Boeing has tumbled 14 percent since an Ethiopian Airlines 737 Max 8 plunged into a field March 10, prompting the grounding.

777X Delay
Boeing also disclosed some bad news on another front: an engine issue delayed the first flight of the 777X to early next year, according to a company statement. The planemaker says it can still make the first delivery of the twin-engine behemoth by late 2020, while cautioning that “there is significant risk to this schedule.”
General Electric Co said that it redesigned a compressor part for the GE9X engine used in the 777X after discovering a durability issue. The company, which had flagged the problem last month at an investor meeting, said it’s “working with Boeing to remain aligned on these efforts” while seeking certification of
the engine.
“We are not surprised to see 777X slip and while delays are not good in principle, there are mitigating factors here,” Seth Seifman, an analyst at JPMorganChase & Co, said.
Boeing is saving cash on development and deferred production costs, while airlines aren’t “clamoring” for large wide-body jets, given low fuel prices, Seifman said. And “there is probably still a lot to iron out regarding the certification process for this aircraft.”

Rising Bill
The 777X is Boeing’s first new jetliner since the 737 Max, the single-aisle workhorse that remains the company’s biggest challenge. The total bill for Boeing stands at $8.3 billion — and counting.
The manufacturer continues to churn out 42 single-aisle 737 jets a month to dull the blow to suppliers. Since airlines and lessors can’t take delivery of Max planes with the flying ban in place, payments to Boeing have dropped while the company absorbs the expense of storing about 150 newly built aircraft.
As they lay plans for late this year and 2020, executives must strike a balance between overloading Boeing’s balance sheet and stressing the 600 suppliers that provide the 400,000 parts that go into each Max.
With another rate cut, the US planemaker runs the risk of subcontractors shifting capacity to European rival Airbus SE, said Ferguson of Bloomberg Intelligence. Boeing is wary of hurting its ability to speed up its 737 factory when the crisis ends — worsening delays for airlines waiting for new Max.
The company is studying whether a short-term shutdown might be less disruptive than slowing work on the Max, Muilenburg said.
The company revealed a $5.6 billion pretax charge to compensate airlines and lessors, outlining for the first time costs that could linger for years in the form of discounts on future jet orders, spare parts and services. The Chicago-based company also added another $1.7 billion to its anticipated 737 production cost, bringing the total drag against future profit from disrupted Max output to $2.7 billion.