The two recent fatal crashes and subsequent grounding of Boeing’s 737 MAX have prompted the jet maker to sharply and quickly cut production in Renton from the current 52 airplanes per month to 42 per month, signaling that a return to flight isn’t expected soon.
Boeing said it does not plan any layoffs due to the rate reduction, which begins in about 10 days. Managers are informing employees of the Renton 737 factory at meetings on Friday.
“The 737 program will maintain current employment levels,” said Boeing spokesman Paul Bergman. “We’re adjusting the rate to accommodate the pause in deliveries. There’s no employment impact.”
Boeing Chief Executive Dennis Muilenburg said the rate reduction will allow the company “to prioritize additional resources to focus on software certification and returning the MAX to flight.”
The move will hurt Boeing’s cash flow this year, putting more pressure on the share price, which has dropped 9 percent since the second crash, Ethiopian Airlines Flight 302 on March 10. Boeing announced the news of the production-rate drop moments after the stock market closed Friday.
About 12,000 people work at the Renton plant where the 737s are assembled. The plant now mostly produces the MAX model, with a fast-dwindling number of older-model 737s rolling off the line. In February, Boeing delivered 20 MAXs and just 14 older models.
Boeing makes rate-change decisions like this only reluctantly, because the impact on suppliers is severe and the whole production system will be disrupted unless all the suppliers can act in unison.
So Boeing typically changes the rate only when it knows it can maintain the new production pace for at least a year or so. In this case, Boeing is calling the rate reduction “temporary,” its extent dependent on how long the MAXs are grounded — which is unpredictable.
However, the move suggests Boeing anticipates a prolonged grounding lasting months. Obstacles to resumption of flight include both technical fixes and regulatory approvals from a global community of aviation-safety agencies that have grown more skeptical of both Boeing and the U.S. Federal Aviation Administration (FAA).
The 737 production system is such a well-oiled, efficient machine — it has gradually accelerated production from 27 jets per month 20 years ago to 52 per month today — that it can accelerate or slow down only in very carefully choreographed phases.
Every rate increase requires a synchronized step up by the entire supply chain, whether it’s a company supplying tens of thousands of small fasteners or one delivering dozens of whole fuselages.
It has to be meticulously planned so that raw materials and labor are in place to handle the extra work. Each step up means more money coming in, which is part of each supplier’s business plan many months ahead.
This rate decrease will require suppliers to correspondingly step down, meaning a hit to their business as well as potential layoffs.
Muilenburg said Boeing will “work directly with our suppliers on their production plans to minimize operational disruption and financial impact of the production rate change.”
Hardest hit will be Spirit AeroSystems in Wichita, Kansas, which makes the complete fuselages for all 737s and sends them by train to Renton. Spirit must quickly adjust its own pace to build 10 fewer fuselages per month.
Likewise, CFM International, which provides the new LEAP engine on the MAX, will have to deliver 20 fewer engines per month. But since CFM was struggling with the steep production ramp up of these engines, which are delivered to both Boeing and Airbus, the slowing of its pace may actually be a welcome chance to get back on track.
Bergman, the Boeing spokesman, said that because of the complexity of the 737 supply chain, once the grounding is lifted, production in Renton will have to ramp back up “in a phased approach.” That could mean some months.
It’s likely that once Boeing does get the go-ahead from the FAA and foreign regulators to begin flying the planes again, it will first ramp up to 47 jets a month and get that pace running smoothly before moving back up to 52 per month.
And when it does resume deliveries of the MAX, it will take Boeing many months to catch up on the delayed deliveries to airlines. It may shuffle the delivery schedule to try to accommodate airlines that need their planes sooner, asking others to wait longer.
Moving around the delivery schedule should be made easier because some airlines are now wavering on whether to defer or even keep their orders for the MAX. Some will want to hold off taking their airplanes until a successful re-entry into service has overcome anxiety among the flying public about the plane’s safety.
A resumption of higher production will depend on how long it takes to get approval from the FAA and foreign regulators for Boeing’s proposed software fix to the MAX’s flight-control system and accompanying pilot training.
“We’ll have to monitor as we go,” Bergman said.
Other issues will also need addressed before the grounding can be lifted.
The preliminary investigation into the Ethiopian Airlines crash last month revealed that it had essentially the same cause as the Lion Air crash in October: a failed angle-of-attack sensor that measures the angle between the wing and the oncoming airflow fooled the flight computer into thinking the plane was pitched too high and triggered a new automatic flight-control system that pushed the nose of the jet down repeatedly.
But the sensors in the two accidents apparently failed in different ways. So in addition to the software update for its new Maneuvering Characteristics Augmentation System, or MCAS, Boeing will also have to find out how those sensors failed.
Airlines must also be satisfied before the MAX can fly again.
In an interview Thursday on NPR’s “All Things Considered,” Ethiopian Airlines Chief Executive Tewolde GebreMariam said he’s undecided on whether the carrier will stick with its Boeing order for 29 MAX airplanes.
“Boeing and the FAA will have to convince us all, not only Ethiopian Airlines, but all the regulators, all the operators that have grounded the airplanes,” Tewolde said. “We will have to be convinced beyond reasonable doubt that the airplane is safe to be back on the air and then we will decide what to do with our orders.”
CEO Muilenburg said Boeing is “coordinating closely with our customers as we work through plans to mitigate the impact” of the production cut.
In a note to clients last month, Ron Epstein, an aerospace-industry analyst with Bank of America, estimated a three- to six-month grounding is likely.
The 737s that continue to be built will still have to be parked all around the Puget Sound region until the grounding is lifted and deliveries resume.
The news of the sharp rate reduction seems to place out of reach Boeing’s publicly stated goal of increasing 737 production later this year to 57 jets per month.
That will have a competitive impact because Airbus is ramping up to build 60 single-aisle jets per month by mid year, including its rival A320 family of jets and its new A220 models. It has ambitions to hike that to 63 per month in subsequent years.
The higher rate allows Airbus to offer airlines earlier delivery slots. The main barrier to increasing its production has been the availability of LEAP engines, so the slowdown in supplying those engines to Boeing may even help Airbus ramp up more quickly.
On Friday, Bergman said he has “no information” about any change to the plan to ramp up to 57 per month. But Boeing cannot really plan for that without more clarity on when the grounding might be lifted.