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A Boeing 737 MAX 10 jet before its first flight in Renton, Wash., in June 2021.
Stephen Brashear/Getty Images
Boeing
wants to ramp up production of its 737 MAX jet to generate cash flow and help to repair its balance sheet, but that is easier said than done. Problems getting parts are slowing down the process.
Supply-chain issues that have slowed down production of the plane will limit “near-term delivery upside,” RBC analyst Ken Herbert wrote Monday. That could be a small headwind for the stock.
Judging from the market’s reaction, the problem may not be too bad. Boeing (ticker: BA) stock has fallen about 0.9% since reports of the production slowdown emerged late this past week. The
S&P 500
is down about 1.3% over the same span.
One reason for the muted reaction is that the slowdown wasn’t a surprise. Boeing Chief Financial Officer Brian West talked about supply-chain issues limiting production back on May 11, at an investor conference. The issue he cited was a wing connector. One part can create problems up and down any assembly line.
Boeing builds the 737 MAX in Renton, Wash. The assembly line is designed to move constantly, a little like those in the auto industry, though it has fewer stations and doesn’t move as fast.
There are 10 separate stations where many jobs get done while building a MAX. In normal times, each plane will spend about 24 hours in one spot. These are not normal times, though. Things are going more slowly, as the The Wall Street Journal reported on Friday.
Boeing could have kept the production rate up, but the lack of parts would have forced the company to go back to almost-finished planes to bring them to completion. That increases costs, and is an approach Boeing has been trying to get away from.
Eventually, Boeing plans to get to 31 MAX jets a month. That would imply about 90 or so MAX jets delivered each quarter.
In the first quarter, Boeing delivered 86 737 planes, most of them MAX jets. Some of those, however, were likely delivered out of the inventory of hundreds of MAX jets produced while the plane was grounded worldwide from March 2019 to November 2020.
Investors would like to see stable production and deliveries from Boeing. The company planned to hit 31 MAX jets a month this quarter. While the latest, parts-related slowdown might jeopardize that timeline, Boeing still can ramp things back up in June.
Boeing can get there by increasing station time as well as adding another production line. There are three lines that build MAX jets. Two are operating these days.
Looking ahead, Wall Street expects about 110 737-model deliveries in the second quarter. That again will be a combination of new production and inventory.
Whether or not Boeing will hit that mark is anyone’s guess. Investors have no choice but to deal with volatility in deliveries.
Lockdowns to fight Covid-19 in China add uncertainty. In general, one-quarter of MAX orders are ultimately destined for China, but Chinese airlines haven’t taken many jets lately. They haven’t needed them: Air travel in China is way down in the second quarter because many people haven’t been able to travel.
Write to Al Root at [email protected]
