The 737 Max is the company's bestselling jet and remains in huge demand, despite two recent fatal crashes.
Boeing (BA) announced its decision to halt deliveries late Thursday. The planes were grounded for an indefinite period globally this week in the wake of the incidents — a crash in October by Lion Air in Indonesia, and a crash Sunday involving Ethiopian Airlines.
The announcement that the production line will continue is good news for thousands of Boeing employees — machinists, technical employees and supervisors — who work on the assembly line in Renton, Washington. Boeing would not give the number of workers who specifically work on the Max program. It has 70,000 employees in the state, though not all are involved in manufacturing, and many of those work on planes other than the 737 Max.
The move is not a surprise. It would be massively disruptive for Boeing to shut production because of the grounding, said Cai Von Rumohr, an aerospace analyst with Cowen. Its suppliers would also be hurt if they couldn't make and deliver the parts and components used by Boeing. And Boeing is trying to ramp up production of the planes to get them to customers as soon as possible. It is currently building about 52 of the 737 Max planes a month.
When the 787 Dreamliner was grounded for three months in 2013 because batteries were catching fire, Boeing kept building that plane as well. The fix for the Dreamliner problem was a more extensive change to that plane than a software update of a safety system. It included the installation of a containment and venting system around the batteries.
Airlines have no real interest in accepting deliveries of planes they have no ability to fly. Airlines typically pay about 60% of the cost of a plane upon delivery, according to Von Rumohr. So Boeing's revenue figures for the first quarter will probably take about a $1.8 billion hit from the halt in delivery.
But Von Rumohr expects the revenues will end up being recorded in the second quarter. He doesn't think the grounding will be long. "Our guess is weeks and not months," he wrote in a note to clients Wednesday.
Both crashes remain under investigation, but a preliminary investigation of the Lion Air crash showed pilots fighting with an automatic safety system for control of the jet. The system seems to have forced the nose of the jet down in a mistaken belief the plane was at risk of stalling. The US Federal Aviation Administration reported Wednesday that there appear to be similarities in the track of the two fatal flights.
Boeing and the FAA are also working to finalize a software update designed to make the planes safer, which is expected to be done by next month. But in the meantime, the 737 Max jets that had been in service will remain grounded indefinitely — all 371 of them.
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