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Boeing considers halting production of the 737 Max
BOEING said on Wednesday that it was considering halting production of the 737 Max if the grounding of its most popular plane persists - a move that could damage airlines, suppliers and even the US economy.
The company is struggling to contain the fallout from two deadly crashes of the Max. It has already announced more than US$8 billion in costs related to the accidents and is producing the planes at a slower rate.
The damage is spreading through the constellation of companies connected to Boeing, the US's largest aeropace manufacturer. Airlines around the world have cancelled thousands of flights, costing them billions of dollars, and some carriers have reined in expansion plans. Suppliers such as General Electric, which makes engines for the Max, are expecting lower revenue in the quarter.
The economic toll is also rising. Orders of durable goods in the United States, which include commercial airplanes, were down 1.3 per cent in May, the third drop in four months, according to the Census Bureau.
By one estimate, a production halt would shave about six-tenths of a per cent off the gross domestic product (GDP) growth rate, the financial equivalent of a prolonged government shutdown or a significant natural disaster.
"The fact that they talked about it for the first time is significant," said Scott Hamilton, managing director of Leeham Co, an aviation consultancy. "When Boeing starts talking about a topic and repeating it, especially in the same event, they're signalling that something is going on."
Boeing's chief executive Dennis Muilenburg and its chief financial office Greg Smith both raised the prospect of halting production of the 737 Max on a conference call discussing the company's second-quarter earnings on Wednesday.
"We might need to consider possible further rate reductions or other options, including a temporary shutdown of the Max production," Mr Muilenburg said.
After the crashes, Boeing slowed production of the 737 family to 42 planes per month in April, down from 52. It cannot deliver any Max jets until regulators clear the plane to fly, and has stockpiled more than US$30 billion worth of planes in Seattle.
Boeing has said that it expected the Max to return to service late this year. But Boeing and regulators keep finding new problems with the model, leading to a cascading series of delays.
"If that timeline changes significantly, we will have to evaluate these other scenarios," Mr Muilenburg said. "There's no one specific trigger." He added that the decision to halt production would depend on various issues, including the date that the Max is likely to return to service as well as its ability to store and maintain the hundreds of completed planes not yet delivered.
He said that temporarily halting Max production might make more sense than reducing production levels. Given what it costs to operate and staff the production line, the Max programme could become unprofitable if Boeing does not make enough planes each month.
"It is significant that not only Muilenburg talked about, but that Greg Smith talked about it, too," Mr Hamilton said. "For those of us that have followed Boeing for decades, this is them raising the caution flag."
The longer the Max stays grounded, the bigger the financial fallout. The three US carriers that fly the Max - Southwest Airlines, American Airlines and United Airlines - have cancelled thousands of flights into November, depressing their revenue. Ryanair, the Irish budget airline, said this month that it would scale back expansion plans because the Max planes it ordered were delayed. NYTIMES