The Boeing Co. (NYSE: BA) said Monday it is suspending production of its bestselling 737 MAX jetliner after U.S. regulators last week indicated they wouldn’t lift a flight ban for the faulty plane until next year. Anticipation of the move sent shares tumbling 5.2% to close at $323.85.
The Dec. 16 decision was announced following Boeing’s two-day board meeting in Chicago. Boeing said no layoffs or furloughs are expected at this time.
The airframer has repeatedly warned it could suspend or cut back production levels to free up resources for other products if the U.S. Federal Aviation Administration (FAA) delays a new certification for return to commercial service. Monday’s statement indicated the halt in production will enable the manufacturer to focus on preparing about 400 aircraft in storage for delivery once the grounding is lifted.
Last week, FAA Administrator Stephen Dickson confirmed that the review process won’t be completed until 2020 and told lawmakers the agency will take as much time as needed to make sure the narrowbody aircraft is safe to fly again. American Airlines quickly pushed back its schedule for resuming 737 MAX service until early April.
Aviation authorities grounded the 737 MAX last March following the crash of an Ethiopian Airlines plane. In November 2018, a Lion Air 737 MAX in Indonesia also went down. A total of 349 people lost their lives. Investigations found problems with software that automatically overrode manual controls during takeoff. The system received faulty information from sensors about a possible stall and overcorrected, surprising pilots who had not been properly trained to deal with the autonomous actions.
“Safely returning the 737 MAX to service is our top priority. We know that the process of approving the 737 MAX’s return to service, and of determining appropriate training requirements, must be extraordinarily thorough and robust, to ensure that our regulators, customers, and the flying public have confidence in the 737 MAX updates,” Boeing said in a statement. “As we have previously said, the FAA and global regulatory authorities determine the timeline for certification and return to service. We remain fully committed to supporting this process. It is our duty to ensure that every requirement is fulfilled, and every question from our regulators answered.”
At a House Transportation & Infrastructure Committee hearing last week, Chairman Peter DeFazio, D-Oregon, disclosed that an FAA analysis conducted in December 2018, after the Lion Air Crash, predicted 15 more fatal crashes over the lifetime of the 4,800 aircraft expected to be produced, assuming no software fixes to the flight software, known as MCAS. The report never reached FAA’s safety chief.
“I am not aware of any other certified transport aircraft that has such an analysis,” DeFazio exclaimed, questioning why regulators allowed the plane to continue flying while Boeing worked on a fix.
Last spring, Boeing scaled back production to 42 planes per month, down from 52. Last quarter, it reported a 41% drop in revenues due to slower deliveries and $900 million in additional costs tied to the grounding. It reported negative operating cash flow of $2.4 billion. Earlier, it took a $5 billion charge to compensate airlines that lost the ability to replace less fuel-efficient planes or increase capacity to sell more tickets. Southwest Airlines (NYSE: LUV) last week said it reached a partial settlement with Boeing.
The MAX is the most visible of many setbacks Boeing has experienced this year. Earlier this month, the FAA proposed a $3.9 million fine because Boeing self-certified dozens of 737s even though it knew wing components delivered by suppliers were defective. It also faces delays with its next-generation 777, the 777X, because of problems with GE engines that need to be redesigned and a failure during a structural test of the fuselage that will require more engineering work.
Problems with the 777X contributed to Australian carrier Qantas announcing Thursday, Dec. 12, that it has selected the Airbus A350 as its super long-range plane of the future. Qantas wants planes that can fly nonstop between Sydney and New York and London, which Airbus will achieve by adding an extra fuel tank. The configuration will severely limit space for cargo.
Qantas has not signed a contract with Airbus yet but could order up to 12 planes if it gets regulatory approvals to operate the routes by March.