By mid-April Boeing (BA) will cut production of its 737 planes to 42 a month from the current 52-a month pace. Before the crash of a 737 Max operated by Lion Air and one operated by Ethiopia Airlines, Boeing had planned to increase production of the 737 by 10% by mid-year.
Boeing shares fell 2.35% to $383.35 in after-market trading, following the announcement. Spirit Aerosystems (SPR) is the hardest hit of Boeing suppliers with its shares down 2.95% in after-hours trading.
With the 737 Max now grounded indefinitely and deliveries suspended, Boeing customers have halted advance payments on their orders. That’s likely to cut cash flow to Boeing by $1.5 billion to $2.7 billion a month. The delay in ramping up production will help the company conserve cash. Before the crashes, the 737 Max was projected as responsible for 50% of the company’s revenue mix for the year.
On April 1 Boeing said that it would be several weeks before the software patch to fix the attitude control system on the plan is submitted to regulators for review. It’s not clear how long the U.S. Federal Aviation Administration and other national regulators will take for that review. With the FAA facing tough criticism for its procedures in initially approving the Max–and with a criminal investigation now underway as well as the expected civil suits, I’d expect the FAA to now be very careful to conduct a painstaking review. And with the FAA’s reputation in question, I’d expect other national air safety regulators to take lots of time for their own review.Boeing is scheduled to report earnings on April 24.
