Boeing’s MAX production issues ripple across aerospace industry
BOEING’S troubles with its best-selling single-aisle 737 MAX jets are taking a toll on airlines, which are forced to adjust their fleet and capacity expansion plans and face higher operating costs.
Analysts are warning of more pain for carriers after the FAA late on Wednesday (Jan 24) froze increases in production of the 737 MAX.
The FAA said the order meant Boeing could continue producing MAX jets at the current monthly rate, but it could not increase that rate. It offered no estimate of how long the limitation would last and did not specify the number of planes Boeing can produce each month.
Customers’ frustration is mounting.
Alaska Air Group, the operator of the US planemaker’s 737 MAX 9 aircraft that suffered a mid-air incident this month, on Thursday forecast a US$150-million profit hit in 2024 from the more-than-two-week-long grounding of the aircraft.
The carrier also cast doubts on its capacity growth plans for the year, citing “the grounding, and the potential for future delivery delays.”
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The CEO of American Airlines, another customer, on Thursday said, “we need Boeing to be successful over the long run,” and the company needs to “do everything they can to get back on track.”
“Boeing needs to get their act together,” said American’s CEO Robert Isom, calling the issues facing the planemaker unacceptable. “It is hard enough running an airline ... We need quality product, and that’s what we demand.”
Southwest Airlines altered its fleet plans for 2024 due to Boeing’s continued supply chain challenges and uncertainty over certification of the smaller MAX 7.
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Before the Jan five accident when a cabin panel fell off during Alaska’s flight, Southwest was expecting the MAX 7 plane to get certification from the US Federal Aviation Administration (FAA) by this April, allowing it to start flying the aircraft in October and November.
The delivery delays have forced airlines to fly older planes longer than expected, driving up maintenance and repair costs.
Southwest said on Thursday non-fuel operating costs would be up as much as 7 per cent in 2024, in part due to maintenance expenses.
More pain for airlines
The FAA’s unprecedented intervention in production schedules could further delay some deliveries of new planes to airlines and hurt suppliers already reeling from an earlier MAX crisis and the pandemic.
“With a constrained supply of new aircraft, airlines are likely to struggle to increase their capacity as planned,” said Christopher Raite, senior analyst at research firm Third Bridge.
“Additionally, the delay in receiving new aircraft could lead to increased maintenance and operational costs for existing fleets.”
Some airlines could be significantly impacted by any freeze on higher production, a senior industry source said, though many in the industry have already factored in some delays as aerospace firms continue to recover from the pandemic.
United Airlines, for example, has 100 MAX deliveries scheduled for this year, according to a regulatory filing in October. This week it warned of a wider-than-expected loss in the first quarter due to the grounding of MAX 9 airplanes.
United’s CEO Scott Kirby said on Tuesday the airline, which has ordered 277 MAX 10 jets with options for another 200, would build a new fleet plan that does not include a model already mired in regulatory and delivery delays.
Boeing shares were down 5.7 per cent Thursday. Shares of Alaska were up 4 per cent and Southwest’s rose 1 per cent. United’s shares were trading up 5 per cent while American rose 9 per cent.
The FAA did allow grounded MAX 9 planes to return to service once inspections were done, a relief to US MAX 9 operators Alaska and United, which had been forced to cancel thousands of flights and aim to begin returning the planes to service on Friday and Sunday, respectively.
Production line plans
Boeing is seeking to increase production of its best-selling single-aisle 737 MAX family to keep pace with demand and close a gap in the market with European planemaker Airbus.
Analysts have expressed concerns that extra scrutiny of Boeing factories following the MAX 9 door plug blowout would temper production increases for the smaller and more widely sold MAX 8, a key source of cash for Boeing and many suppliers.
Boeing’s latest 737 master schedule, which sets the production pace for suppliers, calls for production to rise to between now and late 2025, Reuters reported in December. However, Boeing’s own production pace can lag the supplier master schedule.
The FAA’s decision could impact plans to stand up a new 737 MAX line in Everett, Washington, by mid-2024, following the end of production of Boeing’s iconic 747 in the massive plant.
The line, set to be the fourth 737 line overall and the first outside its Renton plant in suburban Seattle, is needed to meet strong demand.
Boeing declined to comment on any potential impact on the Everett line. REUTERS
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