Business

Boeing to suspend production of 737 Max next month

Boeing Co will halt 737 Max production in January, the company said Monday, as the grounding of the planemaker's bestselling Max looks set to last well into 2020.

Plane behind 2 deadly crashes has been grounded since March

An Air Canada Boeing 737 Max 8 aircraft prepares to land at Vancouver International Airport, in Richmond on March 12. Boeing will cease production next month of the troubled airplane behind two deadly crashes. (Darryl Dyck/The Canadian Press)

Boeing Co will halt 737 Max production in January, the company said Monday, as the grounding of the planemaker's bestselling Max looks set to last well into 2020.

The company also said there would be no layoffs during the production freeze.

The decision to freeze production, made by Boeing's board after a two-day meeting in Chicago, follows news last week that the Federal Aviation Administration (FAA) would not approve the plane's return to service before 2020.

"We have previously stated that we would continually evaluate our production plans should the Max grounding continue longer than we expected," Boeing said in a written statement. "As a result of this ongoing evaluation, we have decided to prioritize the delivery of stored aircraft and temporarily suspend production on the 737 program beginning next month."

The 737 Max has been grounded since March after two crashes in Indonesia and Ethiopia killed 346 people within five months, costing the plane manufacturer more than $9 billion so far.

Until now, Boeing has continued to produce 737 Max jets at a rate of 42 per month and purchase parts from suppliers at up to 52 units per month, even though deliveries are frozen until regulators approve the aircraft to fly commercially again.

Severe cash shortage

Halting production will ease a severe squeeze on cash tied up in roughly 375 undelivered planes, but only at the risk of causing industrial problems when Boeing tries to return to normal, industry sources said. Supply chains are already under strain due to record demand and abrupt changes in factory speed can cause snags.

In 1997, Boeing announced a hit of $2.6 billion US, including hundreds of millions to deal with factory inefficiencies after it was forced to suspend output of its 737 and 747 lines due to supply chain problems.

Disruptions to production could result in layoffs or furloughs of some of the 12,000 workers at Boeing's 737 factory south of Seattle. (Lindsey Wasson/Reuters)

Aside from additional 737 Max charges, disruptions to production could also result in layoffs or furloughs of some of the 12,000 workers at Boeing's 737 factory south of Seattle.

Boeing's shares closed down four per cent on Monday and fell one per cent after hours. Shares in Spirit AeroSystems Holdings Inc, its biggest supplier, closed down two per cent.

Spirit, which makes the Max fuselage along with other parts such as pylons, said on Monday it would work with Boeing to understand any changes to the production rate.

Analysts highlighted Safran SA and Senior Plc as other suppliers that could experience disruption impacts.

Airlines with 737 Max jets and orders also face added uncertainty after already scaling back flying schedules and delaying growth plans due to the grounding. Southwest Airlines Co, the largest 737 Max customer, said last week it had reached a confidential compensation agreement with Boeing for a portion of a projected $830 million hit to operating income in 2019 from the grounding.

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