Boeing’s MAX production concerns affect aerospace industry

Boeing (BA.N), opens a new tab. Troubles with Boeing’s 737 MAX jets are upending the aerospace industry’s 2024 plans, altering airlines’ fleet and expansion goals as US regulators halt manufacture of the best-selling jets.

The Federal Aviation Administration increased its examination of Boeing following a terrifying Jan. 5 incident in which a cabin panel tore off an Alaska Airlines jet mid-flight. The jet landed safely, with only minor injuries to those on board – but the incident has compelled the industry to address issues with Boeing’s manufacturing and quality-control methods.

The FAA halted manufacturing increases of the single-aisle 737 MAX on Wednesday due to the concerns, which have irritated executives who rely on Boeing, one of only two major global plane makers.

“Boeing needs to get their act together,” said American Airlines (AAL.O) CEO, Robert Isom. “It’s hard enough running an airline. We require quality products, and that is what we expect.”

The FAA’s rule allows Boeing to continue producing MAX jets at its current monthly rate, but it cannot expand that rate. It provided no estimate of how long the limitation would remain or how many planes Boeing could make each month.

The FAA’s unusual interference in production schedules might further delay certain new plane deliveries to airlines, putting a strain on suppliers who are already dealing with the aftermath of the MAX issue and epidemic.

Boeing CEO Dave Calhoun told Reuters on Thursday that he supported the FAA’s decision. “Everyone wants safe airplanes. “This is a safe airplane,” he stated in Washington, where he is meeting with US politicians.

Some airlines might be considerably impacted by any halt on higher production, according to a senior industry source, but many had already budgeted for some delays as aerospace manufacturers recover from the pandemic.

Several US carriers said on Thursday that they have changed their plans for 2024.
Alaska Air Group (ALK.N), the operator of the 737 MAX 9 that was involved in the mid-air incident, is forecasting a $150 million profit impact in 2024 as a result of the nearly three-week-long aircraft suspension. It also questioned its capacity expansion plans for the year, citing the grounding and “the potential for future delivery delays.”

Southwest Airlines (LUV.N), which opens a new tab, has changed its fleet plans for 2024 because of supply chain issues and uncertainties about the certification of the smaller MAX 7. Prior to the January 5 accident, Southwest expected the MAX 7 to be certified by April.

On a Thursday earnings call, CEO Bob Jordan stated that he had “absolute confidence” that Boeing would work through the issues and “come out of this a better company.”
Senator Tammy Duckworth, who chairs the Senate Commerce Committee’s air safety subcommittee, told reporters following a meeting with Calhoun that she had requested the Boeing CEO to retract a proposal to exempt the MAX 7 from some regulations so that it might be FAA-certified. Calhoun indicated he would think about it, but made no promises, according to Duckworth.

American Airlines, based in Texas, has ordered 20 MAX jets for delivery this year. Devon May, Chief Financial Officer, told Reuters that the FAA’s directive may have a “modest” impact on the delivery.

American plans to place a fresh order for jets for delivery in 2027 and beyond. May stated that the corporation is in talks with Boeing, Airbus (AIR.PA), and Embraer (EMBR3.SA) about the potential order, but is aware of Boeing’s ongoing challenges.

“We absolutely take current events into consideration as we’re going through our analysis of this order,” May was quoted as saying in an interview.

According to regulatory documents, United Airlines (UAL.O) will make 100 MAX deliveries this year. It warned of a larger-than-expected first-quarter loss owing to the grounding, and CEO Scott Kirby said the airline will also develop a new fleet plan as a result of Boeing’s delays.

The FAA did allow grounded MAX 9 jets to return to service once inspections were completed, providing relief to U.S. MAX 9 operators Alaska and United Airlines, which had been forced to cancel thousands of flights and intend to resume service on Friday. Copa Airlines (CPA.N) resumed flying the damaged aircraft on Thursday, according to a company representative.
Boeing suspended production for 15 hours on Thursday at its 737 MAX factory in Renton, Washington, for a “quality stand-down.” During the event, about 10,000 employees met in small groups to identify quality and safety improvements that might be implemented in various work areas throughout the complex, according to Boeing.
Boeing shares sank 5.7% on Thursday in a tumultuous session for the sector, while supplier Spirit Aerosystems (SPR.N), opens new tab, plunged 7.9%.
Alaska closed up 4.5%, United up 5.2%, Southwest down 2.3%, and American up 10.3%.
Boeing plans to raise 737 MAX manufacturing to meet demand and close a market gap with Airbus.
Analysts have expressed concern that increased inspection of Boeing plants could limit production increases for the smaller and more commonly sold MAX 8, which is a key source of revenue for Boeing and several suppliers.
According to Reuters in December, Boeing’s most recent 737 master plan, which determines the production pace for suppliers, anticipates for increased production between now and late 2025. However, Boeing’s own production can go behind the supplier master schedule.
The FAA’s decision could have an influence on plans to open a new 737 MAX production line in Everett, Washington, by mid-2024.
The line, which will be the fourth 737 line overall and the first outside of its Renton factory in suburban Seattle, is needed to satisfy high demand.

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