Boeing Co. will soon learn whether the financial fallout from the widespread grounding of its best-selling jetliner will be a brief jolt -- or a much more painful ordeal with repercussions for suppliers and the U.S. economy.
Production of the 737 Max has continued at full tilt even though regulators grounded the single-aisle jet after a March 10 crash, the model's second fatal accident in five months. Subcontractors have begun to speed up the manufacturing pace for the 600,000 parts that go into each one of the single-aisle planes, Boeing's largest source of profit.
For now, the company and its supplier base are sticking to a carefully orchestrated schedule, which predates the accidents, to raise monthly output to 57 jets by midyear. That's about 10 percent higher than the current factory output, which is already a record. But if regulators take their time in certifying the plane's return to the skies, Boeing would be forced to stash hundreds of factory-fresh jets in airports across the western U.S.
"If they can't sell these things for six months, they're going to have 300 or more airplanes parked," said Stephen Perry, co-founder of Janes Capital Partners, a boutique investment bank that specializes in aerospace deals. "The working capital tied up in that is quite mesmerizing."
About 16 Max jets are already stored at Paine Field, adjacent to a Boeing factory north of Seattle, while another five sit at Boeing Field to the city's south, according to 737 production blogger Chris Edwards. Airports from Moses Lake, Wash., to Victorville, Calif., are preparing to take in the Boeing aircraft.
Ethiopian authorities today are expected to release the preliminary report on the March 10 crash of an Ethiopian Airlines 737 Max 8 plane.
Boeing has several options as it maps production scenarios for the 737. It could postpone the rate increase and perhaps freeze share repurchases to preserve working capital. If the grounding extends late into the year, the company could slow work at its 737 factory in Renton, Wash., as it did twice after the Sept. 11, 2001, terrorist attacks.
A swift return to normal looks increasingly unlikely. Boeing engineers are still finishing work on a software update for a stall-prevention system linked to a Lion Air crash into the Java Sea off the coast of Indonesia in October, as well as the fatal crash of the Ethiopian Airlines plane near Addis Ababa last month. The two disasters killed 346 people.
Business on 04/04/2019
Print Headline: Boeing sticks to output plan for grounded jetliner model