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Boeing will halt production of its troubled 737 MAX

by Ace Damon
Boeing will halt production of its troubled 737 MAX

18 Dec 2019

TRADE AVIATION makes up most of Boeing's revenues. The high military rank of his large defense arm would be excused for viewing this business as a tactically and strategically flawed case study. After two crashes of its 737 MAX aircraft, which killed 346 people and were linked to a faulty flight software system, the best-selling model was launched worldwide in March. However, Boeing continued to manufacture the aircraft, although it could no longer deliver new ones to customers. Now it is in retreat. On December 16, with about 800 new and used non-flying jets, the company decided to halt production in January until MAX is allowed back in the air. The revolt may finally force a rethink on Boeing – and its European rival Airbus.

For months, Boeing seemed to treat MAX's difficulties as a brief period of turmoil that passengers forget as soon as the liquor cart arrives. It continued to pay a sizeable dividend even by converting employee parking lots into storage space for undelivered aircraft. He repeatedly assured the airlines that the aircraft would be back in the air shortly – and proved wrong again and again. Dennis Muilenburg, criticized for dealing with the crisis and relieved of his role as Boeing president in October, remains chief executive.

Muilenburg's decision to keep the MAX supply chain in operation, reportedly increasing production from 42 to 57 aircraft a month by 2021, will consume $ 4.4 billion in cash this quarter, according to Jefferies. Interrupting should save half of that. Boeing promises to provide financial details of the suspension in January, when it will release upcoming quarterly earnings. These results will surely be terrible. Boeing has about 5,000 orders for the troubled plane, which Goldman Sachs, an investment bank, estimates would account for a third of the company's revenue over the next five years. But it will not be fully paid until they can be delivered.

In the first nine months of the year, revenue fell 19% from 2018 and free cash flow was negative (see chart). Gross debt increased from $ 14 billion to $ 25 billion at the beginning of the year. After earning more than $ 5 billion in profits from January through September 2018, its airline division lost nearly $ 4 billion in the same period in 2019. Boeing as a whole made a small profit, courtesy of its defense weapons. and services. In July, it set aside $ 5.6 billion to cover offsets to suppliers and airlines. Now that number will probably double, says Jefferies. Since March, Boeing's market capitalization has fallen a quarter, equivalent to $ 65 billion.

The return date for MAX remains in the air. The crisis has revealed a warm relationship between Boeing and the Federal Aviation Administration (FAA), the regulatory agency responsible for certifying its aircraft in the United States. It got cold. Boeing may have thought it could accelerate MAX's return by publicly presenting a timeline. In the summer, the company talked about recertification in September and return to service soon after.

The FAA is taking a while. In a letter to congressmen, he complained of "the perception that some of Boeing's public statements were designed to force the FAA to take faster action." The probability now is that the plane will be recertified in February. Regulators elsewhere are in no hurry either. The recomposition and delivery of airplanes will take longer, as will the pilots recycling. On December 12, American Airlines said it would put MAX back on schedule in April.

Notwithstanding the crisis, in November Boeing ordered its first firm orders from the outset for 30 aircraft. More is right to follow. Airbus expects to increase production from its rival A320 to 65 aircraft a month by 2022. Even though passengers are reluctant to board the MAX, airlines clamoring for new aircraft have little choice but to continue buying Boeing.

The company is still in the back foot. Plans to develop a new jet to replace the old 757s have been suspended. That left the field for Airbus, whose A321XLR does a similar job. In December, United Airlines, a loyal Boeing customer, ordered 50 of them. Engine problems delayed the first flight of Boeing's newest 777X long-haul aircraft until next year. And despite leading Airbus in long-haul jets, the US company is following its rival's 6,200 A320 orders.

All of this has led to speculation that Muilenburg may not keep his job for long, whether or not MAX returns to the skies in the coming months. Should he go, a new broom may conclude that it's time to retire the 737 series, which has been in the air for over 50 years.

This perspective worries Airbus, which prefers a direct fight between the MAX and A320 for as long as possible. If Boeing chooses to build a more modern aircraft, Airbus will have to, too – just as the 2010 launch of the fuel-efficient A320neo forced Airbus to upgrade its old 737. At that time, Boeing was contemplating a new design that would take six or seven years to go into service. Fearing a loss of sales, he chose to put a new engine in the 737. This decision eventually created his current problems.

A new plane would require both companies to invest billions – and could tie them to technology that predicts the evolution of electric hybrid short-haul aircraft, which could become obsolete in a few years. Airbus prefers not to take this risk. If the MAX timeline falls again, Boeing may have no choice but to do so. ■

This article appeared in the Business section of the print edition, titled "Boeing will stop production of its troubled 737 MAX"

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