Financial pain from Boeing 737 Max expected to deepen after production cut

Seattle: Boeing continues to grapple with the financial fallout from two deadly crashes of the 737 Max, a once-promising commercial jetliner that is now at the centre of one of the worst safety crises in the history of aviation.

Last week, the Chicago-based aerospace giant announced it will stop producing them in January, roughly 10 months after global regulators grounded the planes.

The decision quickly rippled through the global aviation industry. Southwest Airlines, the largest 737 Max customer, announced it will cancel approximately 300 flights a day through the busy holiday travel season. American Airlines is telling customers it expects the jet to be recertified by April 7. And United Airlines, another 737 Max customer, announced it would pull flights through June 4, the longest period of any airline.

Adding to Boeing’s woes, the prominent ratings agency Moody’s downgraded the company’s credit rating on Wednesday, citing the production halt and “regulatory uncertainty” regarding the Max grounding.

“The downgrades follow the extension of the grounding of the 737 Max into 2020, the announced plan to shut down this important program for some interim period, and the uncertainty and elevated risk — both financial and operational — for Boeing and its broader supply chain over the ensuing period,” wrote Jonathan Root, Moody’s lead analyst.

Boeing pledged to work with its suppliers and customers to minimise the financial fallout.

“We deeply regret the disruption that the 737 Max grounding is causing our customers and their passengers,” Boeing spokesman Gordon Johndroe wrote in an email. “We are working with all of our customers to support them through this difficult time. We continue to follow the lead of the FAA and global regulators, as they will determine the timeline for certification so the Max can safely return to service.”

The Max was grounded by global regulators in early March after two deadly crashes in Indonesia and Ethiopia killed 346 people. A flight control software problem that can push the plane into a nosedive was found to have played a role in both crashes.

In early March, Boeing revealed that it had been working on a software “enhancement” to resolve the issue, promising to deliver a fix the following month. But the timeline for approval has been continually pushed back as the FAA found other technical problems.

The ban on deliveries has been costly for Boeing, leading it to a historically-bad quarterly loss of $3.38 billion earlier this year. Revenue fell $20 billion in the most recent quarter, a 21 per cent drop from the previous year.

Neither Boeing nor the Federal Aviation Administration have estimated when they expect the jets to be cleared to fly again. However Patrick Ky, executive director of the European Aviation Safety Agency, told the Financial Times in an interview that he expected to approve the Max’s return to service by the end of February.