(Bloomberg): Boeing Co. is considering temporarily halting production of the 737 Max as regulatory clearance for the grounded jet’s return looks increasingly likely to slip beyond January 2020. Executives are convinced a temporary pause would be less disruptive.
The “Wall Street Journal” had reported earlier that the production plans have become more urgent as the US Federal Aviation Administration signaled it wouldn’t certify the revamped Max this year.
A decision could come soon as Boeing’s directors review the manufacturing plans for the 737 programme, the company’s biggest source of cash, as part of a regularly scheduled December board meeting. During the session, the board traditionally sets the company’s dividend for the coming year and decides on its share repurchases, which have been suspended while Boeing deals with the crisis prompted by the unprecedented grounding.
“We continue to work closely with the FAA and global regulators towards certification and the safe return to service of the Max,” Boeing said in an email. “We will continue to assess production decisions based on the timing and conditions of return to service, which will be based on regulatory approvals and may vary by jurisdiction.”
The planemaker has drafted contingency plans for a variety of scenarios as the Max’s global grounding stretches to more than nine months following two fatal crashes that killed 346 people. Boeing slashed 737 production by 19 per cent in the weeks following the March tragedy. Meanwhile, inventory costs have ballooned to record levels as the company’s factory in Renton, Washington, continued to churn out 42 of the jets a month.
Since the company isn’t allowed to deliver the aircraft while the flying ban remains in place, Boeing has placed more than 380 newly built planes in storage, according to a tally by 737 production blogger Chris Edwards. The build-up would continue if production were slowed rather than halted.
“They are doing the sensible thing by halting or putting a pause on the production line,” said Shukor Yusof, founder of aviation consulting firm Endau Analytics. “Cash burn has been bad.”
A week to forget
Boeing’s board is meeting after a bruising week for the aerospace giant. In a sign of growing rancor between the company and its regulator, FAA Administrator Steve Dickson chastised Boeing CEO Dennis Muilenburg in a December 12 meeting for pursuing an unrealistic schedule for the Max’s return to service.
The FAA said it was worried by a perception that Boeing was pressuring regulators to take action. In a message to the US Congress, the FAA said it had used the meeting to exhort the company to focus on the “quality and timeliness of data submittals for FAA review.”
The rare public admonishment came a day after Dickson was grilled for hours by the House Transportation & Infrastructure Committee over the FAA’s decision to allow the 737 Max to continue flying after the initial fatal Max crash off the coast of Indonesia on October 29, 2018.
The Max was grounded after a second crash in Ethiopia on March 10. The crashes prompted the longest flying ban for a U.S. airliner in the jet age.
Boeing has been studying whether to pause Max manufacturing for a short, clearly defined period of time. Executives figure that that approach would conserve cash and be less likely to trigger widespread layoffs than imposing another factory slowdown.
The 400,000 parts that go into each Max arrive in a tightly choreographed sequence timed, in some cases, down to the hour. But suppliers do regularly navigate stoppages telegraphed in advance, such as strikes, and Boeing’s traditional year-end factory closing - which could be extended this year into the longer pause.