737 Max production may have to be shut down according to Boeing

National News
In this April 10, 2019, file photo a Boeing 737 MAX 8 airplane being built for India-based Jet Airways, top, lands following a test flight, Wednesday, April 10, 2019, at Boeing Field in Seattle. Boeing Co. reports earning on Wednesday, July 24, 2019. (AP Photo/Ted S. Warren, File)

New York (CNN Business) – Dennis Muilenburg, CEO of Boeing, warned investors Wednesday that the company might need to further slow or temporarily halt its 737 Max production.

Boeing has continued to build its bestselling jet, the 737 Max, although at a slower pace. These planes have been grounded since mid-March due to two fatal crashes that killed more than 300 people.

Boeing is hopeful that they will get the approval for the plane to fly again sometime in the early fourth quarter. Any further delays in approval could jeopardize its production, said Muilenburg.

A further slowdown or temporary shutdown of 737 Max production is “not something we want to do, but an alternative that we have to prepare for,” Muilenburg told investors on a conference call. He said the company needs to prepare for that “to make sure we’ve covered all scenarios.”

Boeing is continuing to work on a software fix to a safety system which is believed to have caused the two crashes. But it says it will not be able to present that fix to aviation authorities until September at the earliest, and it hopes to have a certification flight in October.

Muilenburg said Wednesday he believes regulators will approve the 737 Max for flight in a matter of weeks after the certification flight. It is possible that the plane will not be cleared to fly again until at least late 2019.

Boeing executives would not say when it will decide to slow or halt production if its timeline to return to service is not met. Boeing said the uncertainty about the return to service means it still cannot give guidance on future results.

Boeing reported its largest loss ever — a $3.7 billion adjusted loss in the second quarter because of the grounding of the 737 Max airplanes. The company said any slowdown or halt in production could lead to even more losses. The slower pace of 737 Max production has already increased Boeing’s production costs by about $1.7 billion.

Investors were warned by the company that it would take a $5 billion profit hit from its inability to deliver the 737 Max to its customers.

Boeing’s $3.7 billion adjusted loss compares to a $2.4 billion profit Boeing earned last year. Boeing’s results did not include a cost of litigation related to the two crashes. The company announced it will set up a fund to distribute $100 million to the families of victims. But it also said it took a $201 million hit to profit last quarter primarily for a litigation reserve.

Boeing also warned Wednesday that, in addition to the 737 Max issues, it may not be able to deliver its newest aircraft, the 777X, by the end of next year, as it had hoped. Previously disclosed problems with the jet’s General Electric (GE) engine means that target for the first delivery is at “significant risk.”

Boeing said it will take several quarters for Boeing to deliver all its undelivered 737 Max planes once it receives approval for the plane to fly again. Because Boeing gets most of the money from its customers at the time of delivery, that new guidance suggests that Boeing will face reduced revenue well into 2020, even the best case scenario for getting the plane back in the air late this year.

The loss and warning of a possible shutdown of 737 Max production sent shares of Boeing (BA) down nearly 3%. Most of that decline took place after the comment about the possible shutdown. However, the warning on results last week and the fact that the loss was actually a bit less than some Wall Street estimates kept the drop in shares from being worse. Shares of Boeing (BA) are actually up more than 12% since the start of the year, although they are down since the second fatal crash in March.


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