Boeing Snafus Add New Risks to 2024 Production Goals
Financial analysts lower forecasts in wake of Alaska Airlines accident and investigations into 737 production
Boeing BA 1.61%increase; green up pointing triangle was having trouble making enough 737s before the Alaska Airlines door-plug blowout. Now it faces new concerns that added inspections and regulatory scrutiny will sap its output this year.
Key airline customers are inspecting existing 737 MAX 9 planes, while federal air-safety officials are delving into the jet maker’s broader manufacturing processes. They are also examining supplier Spirit AeroSystems SPR -3.09%decrease; red down pointing triangle, which produced the plane’s door plug and fuselage.
Several aerospace analysts have lowered their financial forecasts for Boeing following the Jan. 5 accident, which also led to the grounding of 170 MAX 9 jets. How significant the financial impact is will depend, they say, on how long it takes to identify the cause and secure long-awaited certification of other MAX models.
“The pace is clearly going to be affected,” said Michel Merluzeau of AIR, a research company in Seattle. “In the longer term, this puts a lot of pressure on Boeing.”
Boeing and Spirit have launched internal reviews and have said they support the government investigations. Boeing is slated to update investors on its latest financial results Jan. 31. Chief Executive Dave Calhoun plans to announce the results from the Seattle area, where Boeing builds the 737.
The 737 accounts for the bulk of Boeing’s total production and backlog of orders. The MAX 9 model isn’t as popular as the slightly smaller MAX 8 model. The MAX 9 accounted for about 20% of the MAX deliveries made in 2023. It comprises a far smaller share of the backlog of roughly 4,330 undelivered 737s.
It takes about 11 days in final assembly to produce a single 737 aircraft. Boeing has been promising to get back to producing about 50 a month from its factories. It delivered 45 in December and 396 for all of 2023.
Boeing this month has delivered just five 737s from its Renton, Wash., factory through Thursday, according to data from aviation analytics company Cirium. In the past few years, the plane maker has shipped out 10 to 15 in the same period. Deliveries often ebb and flow, and a slow start to the month isn’t necessarily indicative of longer-term delays.
Boeing had just begun to speed deliveries of the 737 following a series of production issues last year, including a snafu involving misdrilled holes on Spirit fuselages that all but halted production in the summer of 2023 and sapped its profits.
Boeing booked a net loss of $2.2 billion in the first nine months of 2023 on about $55.8 billion in revenue. In that period, the manufacturer generated about $1.5 billion in free cash flow, a closely watched measure, toward its full-year target of $3 billion to $5 billion.
The Federal Aviation Administration has launched a probe of Boeing’s manufacturing and is offering no estimate for when the grounded MAX 9s would resume flying. The scrutiny also could delay certification of two new jets, the shorter MAX 7 and slightly longer MAX 10. Boeing had been expecting certification of the planes, both of which are already delayed, early this year.
Merluzeau said Boeing likely won’t hit its goal of producing 57 MAX jets a month, which the company hoped to hit next year, until late 2026 or early 2027.
Even small delays can add up. A single 737 MAX costs more than $100 million.
Meanwhile, Boeing faces new delays in its long-awaited return to delivering MAX jets to China. China Southern Airlines, one of several Chinese carriers with undelivered MAX planes, is planning to conduct additional safety inspections on those aircraft following the incident, The Wall Street Journal has reported.
Jefferies analyst Sheila Kahyaoglu outlined a worst-case scenario in which Boeing fails to get clearance for the MAX 7 and MAX 10 and is unable to deliver MAX 9s for the entire year. She estimates that scenario would result in 73 fewer plane deliveries and a $2.2 billion hit to free cash flow.
A delay in certification for the MAX 7 and 10, especially if the MAX 9 remains grounded, could have ripple effects, said JP Morgan analyst Seth Seifman. But he said he doesn’t expect major disruption of Boeing’s manufacturing operations.
“The question overhanging all of this,” he said, “is how much impact does the desire to institute incremental controls and the likelihood of incremental regulatory scrutiny have on the pace of production?”
Longer delays could further push down Boeing’s share price, which is down more than 17% year to date and has never recovered to its prepandemic levels.
Boeing lost its crown as the world’s biggest plane maker by number of orders in 2019 following the second fatal crash of a MAX 8 that led to a global grounding and subsequent pause in production. European rival Airbus has been extending its lead: It delivered 735 jets to customers in 2023, while Boeing handed over 528.
Both companies have enjoyed robust demand from airlines looking for more fuel-efficient models and to meet resurgent travel, leaving airlines with long wait times. Boeing continues to rack up orders for its 737s despite its production issues. Akasa Air, India’s newest airline, last week said it ordered 150 MAX planes through 2032 as it seeks to expand to international destinations.