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Spokane, Washington  Est. May 19, 1883

Boeing sees gradual 737 ramp-up while tackling factory flaws

A Boeing 737 Max-9, built for Alaska Airlines, undergoes testing as it flies past the Boeing factory in Everett in 2020.  (Mike Siegel/Seattle Times/TNS)
By Julie Johnsson Bloomberg News Bloomberg News

Boeing Co. plans to build its 737 Max aircraft at a slower pace during the first half of this year as it tackles quality issues and supplier glitches under the close supervision of U.S. aviation regulators, Chief Financial Officer Brian West said.

The measures mean that the workhorse jets will roll out of Boeing’s main 737 plant near Seattle at a rate below the 38-a-month tempo that Boeing established at the end of last year. The company expects output to climb toward that target during the second half of 2024, West said Tuesday at an investor conference hosted by TD Cowen.

While Boeing intends to stabilize and grow its main commercial airplane division over time, the pace of work in its factories will be governed by U.S. regulators, West said. “We have to be careful not to get ahead of ourselves.”

Boeing is pausing its production lines more frequently as it institutes new inspection protocols and catches up with out-of-sequence work. While that will drag on the company’s near-term cash flow, its manufacturing processes will benefit over time from a Federal Aviation Administration quality audit imposed after a Jan. 5 near-disaster with one of its almost-new 737 Max 9 aircraft, West said. The FAA barred the planemaker from increasing production rates on the 737 until it is satisfied that quality has improved.

“If we go slow and we stay at these capped rates for longer, we respect that,” West said.

Boeing hasn’t provided a delivery target for the 737 family this year, and has refrained from setting annual financial goals amid the uncertainty caused by the accident on Alaska Airlines Flight 1282. But West has reassured shareholders that Boeing can maintain its medium-term financial goals even as the company navigates its biggest crisis since two 737 Max crashes led to a global grounding of the model in 2019.

While Chief Executive Officer Dave Calhoun said on an earnings call last month that he was fully focused on improving safety and quality, the CFO told investors Boeing was “still confident” it could reach an annual cash flow target of about $10 billion in the 2025-2026 timeframe.

That goal remains intact, although the timing is moving to the right, West said Tuesday, reiterating comments from the Jan. 31 call.

Boeing shares closed at $204.46 Tuesday in New York, down 2.3%. The stock has declined more than 20% this year, the biggest drop among members of the Dow Jones Industrial Average, as investors assess the impact of the crisis on aircraft shipments and cash flows.

Lower production

Boeing said earlier on Tuesday that it handed over 27 jets in January, a decline of 29% from a year earlier. While the month is typically slow for aerospace deliveries, the results underscore the uncertainty around production with FAA auditors and Boeing’s airline customers monitoring quality controls in its factories and those of suppliers such as Spirit AeroSystems Holdings Inc.

While Boeing has kept the 38-a-month target in place for suppliers producing parts for its top-selling airliner, 737 output at the company’s main narrowbody plant in Renton, Washington, is far lower – between 20 and 25 jets, market analyst Michel Merluzeau said in an interview at a supplier conference last week.

While quality concerns drag on new production, Boeing aims to deliver about 10 already built 737s per month from storage, West said. Repairing and updating the inventoried aircraft so they are airworthy takes about the same amount of resources as building an all-new aircraft, he added.

Even with the lower output, most investors expect the company to deliver about 500 of its 737-family aircraft this year, analyst Ken Herbert of RBC Capital Markets, said in a note to clients after West’s presentation on Tuesday. He estimates Boeing will produce an average of 35 Max jets per month and deliver around 105 aircraft out of inventory for the year. Total 737 deliveries will reach around 535 aircraft, including a small number of militarized P-8 surveillance versions.

Boeing’s oversight of its airplane production has been in the spotlight since a fuselage panel exploded out of an airborne Alaska Air Max 9 on Jan. 5. Investigators have determined that bolts that should have held the door plug in place were missing when the jet was delivered late last year.

FAA Administrator Michael Whitaker is visiting Seattle this week to check in on the agency’s inspectors and the work under way at Boeing.