Boeing Would Halt Production Of 737 MAX By January 2020
- Posted on December 24, 2019
- Stock Market
- By admin
Boeing Co. (BA) has
planned to halt production of its grounded 737 Max in January. This is a move
that could deepen the crisis that has engulfed the company and eventually complicate
its recovery.
In a statement on
Monday, the company said the indefinite shutdown aims to conserve cash but also
jolt a supplier base that stretches from Seattle to Kansas. The statement
further said employees will continue 737-related work or be temporarily reassigned
to other teams, as no layoffs are currently planned.
The factory halting the production of the Boeing MAX planes could be
risky as the financial damage will linger for years after regulators clear
Boeing’s best-selling plane to resume commercial flight. The cash pressure seems
to be rising as almost 400 new aircraft are deteriorating in storage because of
the global flying ban imposed on the company nine months ago. The timing of
regulatory approval for the Max’s return has been postponed repeatedly and
remains uncertain with the bad relationship between Boeing and the Federal Aviation
Administration.
Boeing (BA) fell by
1.4% to $322.60 in early trading on Monday. Spirit AeroSystems Holdings Inc.,
the Max’s largest supplier and Boeing’s former Wichita, Kansas, subsidiary,
dropped by 4.8%. In Europe, suppliers including Safran SA and Senior Plc
plummeted.
In a statement,
Boeing said, “We believe this decision is least disruptive to the health of the
production system and supply chain. The decision is based on such
considerations as the extension of certification into 2020, the uncertainty
about the timing and conditions of return to service and global training
approvals, and the importance of ensuring that we can prioritize the delivery
of stored aircraft."
Max flights
worldwide were halted by regulators after an Ethiopian Airlines jet plunged into a
field on March 10 this year, which was the second tragedy within five months.
The combined disasters killed a total of 346 people and also prompted the
longest flying ban for a United States airliner in the jet age.
In the weeks
following the Ethiopia crash, Boeing cut 737 productions by 19%. However,
inventory costs have risen to record levels as the company plotted a quick
rebound once the narrow-body jet was cleared to resume flights. Boeing left its
supply chain mostly running at the original pace, while the plant in Renton,
Washington, lowered monthly output to 42 jets.
The
implications of this production halt to both investors and the company itself
are outlined below.
· The company does not plan to raise its dividend as directors
approved a quarterly dividend slightly above $2.05 a share for next year.
· Boeing risks a potential unravelling of manufacturing expertise
across a broad swath of North America. The company so far has shielded the 600
mostly U.S. companies building components for the jet from rate cuts, mindful
that its own recovery would be greatly complicated if layoffs prompted
engineers and mechanics at suppliers to move on to other jobs.
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