LDN - Business

FAA halt to Boeing MAX production expansion to hit airlines, suppliers

[January 25, 2024] By Valerie Insinna, David Shepardson and Lisa Barrington

WASHINGTON (Reuters) -The aerospace industry faces widening disruption from the blowout of a panel on an Alaska Airlines Boeing jet after U.S. regulators froze increases in production of the 737 MAX, raising concerns over growth plans of airlines and suppliers worldwide.

The Federal Aviation Administration (FAA) announced the unprecedented intervention in production schedules late on Wednesday, in a double-edged decision that also saw the partial grounding of the MAX 9 model lifted once inspections are done.

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.

Boeing shares fell 2% in U.S. premarket trade. Shares of suppliers Spirit AeroSystems fell 3.9% and Howmet Aerospace fell 3.3% before the bell, while British supplier Senior was down 3.3% in regular trade.

The ability to resume flying was a relief to U.S. MAX 9 operators Alaska Airlines and United Airlines, which had been forced to cancel thousands of flights and aim to begin returning the planes to service on Friday and Sunday, respectively.

But experts said the FAA's response to "unacceptable" quality controls following the loss of a door plug at 16,000 feet on Jan. 5 could delay some deliveries of new planes to airlines and hurt suppliers already reeling from an earlier MAX crisis and the pandemic.

That ripple effect started to emerge Thursday, as Southwest Airlines, a loyal Boeing customer, altered its fleet plans for 2024, saying it expected to take fewer deliveries of 737 MAX aircraft.

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 jet 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.

"The quality assurance issues we have seen are unacceptable." FAA Administrator Mike Whitaker said in a statement announcing the freeze on any expansion in MAX production until the issues were resolved. "That is why we will have more boots on the ground closely scrutinizing and monitoring production and manufacturing activities."

Boeing said it would continue to cooperate "fully and transparently" with the FAA and follow the agency's direction as it took action to strengthen safety and quality.

In October, Boeing CEO Dave Calhoun said the company planned to reach production of 38 MAX planes per month by the end of 2023.

Boeing's latest 737 master schedule, which sets the production pace for suppliers, calls for production to rise to 42 jets per month in February, 47.2 in August, 52.5 by February 2025 and 57.7 in October 2025, Reuters reported in December.

[to top of second column]

Boeing's new 737 MAX-9 is pictured under construction at their production facility in Renton, Washington, U.S., February 13, 2017. REUTERS/Jason Redmond/File Photo

However, Boeing's own production pace can lag the supplier master schedule.

Calhoun faced questions from senators on the Alaska Airlines incident in a series of meetings on Wednesday on Capitol Hill. Senate Commerce Committee chair Maria Cantwell said she would hold hearings to investigate the root cause of Boeing's safety lapses.

"The American flying public and Boeing line workers deserve a culture of leadership at Boeing that puts safety ahead of profits," Cantwell said.

Calhoun said Boeing would restore public confidence in its airplanes.

PRODUCTION LINE PLANS

The FAA's decision could impact plans to stand up a new 737 MAX line in Everett, Washington, by mid-year 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, also in suburban Seattle, is needed to meet strong demand.

Boeing declined to comment on any potential impact on the Everett line.

Once accused of being too soft on Boeing, the FAA has toughened oversight since earlier MAX crashes led to a worldwide grounding, but Wednesday's intervention opens new territory, experts said.

Jefferies analysts said the FAA halt to expansion seemed "restrictive" and lacked a definitive timeline.

"These actions (are) likely put pressure on any near-term production ramp, but appear to be more timing related," they added.

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, for example, has 100 MAX deliveries scheduled for this year, according to a regulatory filing in October.

The FAA announcement came hours after Boeing delivered its first 737 MAX to a Chinese airline since March 2019, ending an almost five-year freeze and granting a respite for strained trade relations between the world's two largest economies.

(Reporting by Valerie Insinna and David Shephardson in Washington, Lisa Barrington in Seoul and Tim Hepher in Paris; additional reporting by Rajesh Kumar Singh in Chicago, Sophie Yu in Beijing and Abhijith Ganapavaram in Bengaluru; Editing by Jamie Freed and Raju Gopalakrishnan)

Back to top