Boeing is Stopping production of embattled 737 Max Beginning in January
Boeing intends to suspend production of the 737 Max beginning in January as it waits for the embattled airplane to be recertified to return to service, the company announced Monday.
The organization’s stock price closed down more than 4 percent Monday after early reports that Boeing (BA) might halt the airplane’s production started to circulate, and then dropped another 0.67% after hours after the provider’s official announcement.
The 737 Max was grounded globally in March after two fatal crashes — a Lion Air jet which plunged to the Java Sea in October 2018 and an Ethiopian Airlines plane downed near Addis Ababa in March — murdered 346 people. But getting the plane back in the atmosphere has proven immensely hard, causing major financial and reputational problems for Boeing (BA).
Orders for its 737 Max dried up, and it was not until last month that Boeing listed its first new orders — a total of just 30 planes — because of the grounding. Meanwhile, the business continued to make the planes as it hoped for a fast recertification by airline regulators around the world.
Now that procedure, which has confronted a variety of reverses, has been pushed into 2020 and Boeing has a list of about 400 of those planes in storage. The firm said the continuing uncertainty of the 737 Max’s future compelled it to make the radical move to pause the airplane’s production and change its focus to delivering airplanes it’s already produced.
“We believe this decision is least disruptive to keeping long-term manufacturing system and supply chain health,” Boeing said in a release Monday.
Boeing didn’t state how long it expects production to be stopped.
Until last week, Boeing was hoping to have certification for the airplane to fly again before the end of the year. However, FAA administrator Stephen Dickson said last week there was no possibility that the certification process could be completed before the end of 2019.
Boeing has been building 42 of the 737 Max jets per month because the grounding, in order to not cause hardship for its providers or be forced to lay off workers it will need later. However, the firm has not managed to deliver the airplanes.
The company has already said it will take until at least 2021 to deliver each of the jets constructed since the grounding, as airlines can’t logistically or financially take hundreds of additional planes all at one time. Regulators also need to inspect every aircraft, adding to the delay.
For the time being, Boeing said it does not expect to need to lay off or furlough employees. Affected employees will continue 737-related work or be temporarily assigned to other groups.
The company said it will provide financial advice concerning the manufacturing suspension in January when it announces its earnings for the last few months of 2019.
The block in deliveries since March has been a huge cash drain to Boeing, making most of its earnings once a plane is delivered. At exactly the exact same time, however, the block will actually decrease the provider’s expenses while deliveries are suspended, although Boeing afterward will have to pay billions to its airline customers to compensate them for the cost of their grounding.
“Safely returning the 737 Max to support is our top priority,’ the firm said Monday. “We are aware that the process of approving the 737 Max’s return to service, as well as discovering appropriate training conditions, must be exceedingly thorough and powerful, to make certain that our regulators, clients, and the flying public have confidence in the 737 Max upgrades… We remain fully committed to supporting this procedure.”