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Boeing to stop making 737 Max jets, for now

The decision, after a two-day board meeting, is the culmination of the worst crisis in the company's 103-year history and follows two crashes that killed 346 people

By David Gelles and Natalie Kitroeff
Published: Dec 17, 2019

Boeing to stop making 737 Max jets, for nowA Boeing 737 Max8 jet at the Boeing Plant in Renton, Wash., on July 21, 2019. Boeing is moving closer to a decision to further reduce production of the 737 Max or bring the factory to a temporary halt as it continues to grapple with fallout from two deadly crashes that have left the jet grounded for nine months
Image: Ruth Fremson/The New York Times

Boeing next month will temporarily stop making the 737 Max, its most popular passenger jet, the company said on Monday.

The decision, after a two-day board meeting, is the culmination of the worst crisis in the company’s 103-year history and follows two crashes that killed 346 people. Boeing had repeatedly signaled that the plane would be cleared to return to the sky before the end of the year.

Boeing’s decision could ripple through the American economy. The company is America’s largest manufacturing exporter and it views the 737 Max as critical to its future.

This new model of its workhorse 737 was begun under pressure in 2011 as the company sought to fend off competition from its European rival, Airbus. But after the two crashes, prosecutors, regulators and two congressional committees are investigating whether Boeing overlooked safety risks and played down the need for pilot training in its effort to design, produce and certify the plane as quickly as possible.

One focus for investigators is a software system known as MCAS, which was created for the Max and was found to have played a role in both crashes. Shortly after the first crash, off the coast of Indonesia in October 2018, Boeing promised a fix to MCAS. Then the second crash happened in March, in Ethiopia.

The plane was grounded days later, and Boeing has still not delivered a software fix for MCAS that has met federal approval. And there is still no timeline for the plane’s return to the air.

Boeing’s reputation and stock price have been battered, with shares in the company falling 25% since March. The company has already announced more than $8 billion in charges related to the crisis, a figure that is expected to rise significantly.

With the company still unable to win approval from global regulators to let the plane fly again, executives and board members have made, in halting production, one of the most consequential decisions in the manufacturer’s history, one that will also affect its hundreds of suppliers around the country.

Shutting down the factory “emphasizes the uncertainty of getting Max back in the air,” Jonathan Raviv, an analyst at Citi, wrote in a note on Monday.

Boeing has only rarely stopped production of its airplanes, most recently in 2008. But the company has never faced a situation like the one it now confronts. Boeing has sold roughly 5,000 of the jets, making it the bestselling aircraft in its history, and it has built nearly 400 Max jets that it has not yet delivered.

“It will have enormous ripple effects,” said Susan Houseman, director of research for the Upjohn Institute for Employment Research. “It will have very real effects on many people’s lives, and it’s never good for this to happen right before the holidays.”

Boeing said it intended to redeploy the roughly 12,000 workers building the Max in its factory in Renton, Washington, to other projects, avoiding layoffs or furloughs for the time being.

It will try to manage the disruption to suppliers, though it did not give details. It may continue to accept parts from major suppliers, so that when the company restarts the Max line production can be quickly ramped up. Other suppliers are likely to endure significant financial pain if Boeing’s shutdown halts part of their assembly line for a period of months.

“Our objective continues to be ensuring supply chain health and production system stability, including the preparedness for seamless transition in the future,” a Boeing spokesman, Gordon Johndroe, said in a statement.

Boeing’s shares were down more than 4% before the announcement. Shares of Spirit AeroSystems, which makes the fuselage of the Max, fell nearly 2% on Monday.

But because Boeing is not planning significant layoffs and its suppliers are distributed around the country, the overall effect on the broader economy will depend on how long the stoppage lasts.

“It’s a blow to the collective psyche,” said Mark Zandi, chief economist at Moody’s Analytics. “But the American economy is performing well, job growth is strong, and the stock market is near a record high. If there was a time when the economy could digest something like this, it is now.”

Boeing had already slowed production at the factory after the crashes. In April, the company said it would reduce the number of 737 planes it produced each month to 42 from 52.

It was not clear how long the Max factory will be shut down. Boeing continues to encounter hurdles with the Federal Aviation Administration and other global regulators as it works to return the plane to service.

The delays have varied from the technical to the procedural, and have now made it likely that the Max will be grounded for a full year, if not longer. Boeing has still not completed all the steps necessary to satisfy regulators.

As a result, Boeing has repeatedly pushed back the projected date of a return to service for the Max. Dennis Muilenburg, Boeing’s chief executive, said in October that he expected the planes to be approved to fly this year. But last week, Stephen Dickson, the administrator of the FAA, said the Max would not fly until 2020.

Southwest Airlines and United Airlines had already postponed Max flights until March, while American Airlines has said it won’t fly the Max until April.

The production shutdown adds to the pressure facing Muilenburg. Among his challenges: the company’s fraying relationship with the FAA, which has become more willing to openly question Boeing in recent weeks.

In a meeting at FAA headquarters in Washington last week, Dickson told Muilenburg that it would be impossible to get the plane flying by the end of the year, despite Boeing’s previously rosy predictions.

“Boeing continues to pursue a return-to-service schedule that is not realistic,” an FAA official wrote in an email to Congress before the meeting. “More concerning, the administrator wants to directly address the perception that some of Boeing’s public statements have been designed to force FAA into taking quicker action.”

The board stripped Muilenburg of his title as chairman in October, saying the move would allow him “to focus full time on running the company as it works to return the 737 MAX safely to service.” David Calhoun, who became chairman of the board, has expressed confidence in Muilenburg.

But in an interview on CNBC last month, Calhoun did not offer a clear answer when asked whether the company would keep Muilenburg in his role as chief executive after the Max returned to service.

“Why speculate on that?” Calhoun said in the interview. “If we successfully get from where he started to where we need to end up, I would view that as a very significant milestone and something that speaks to his leadership and his courage and his ability to execute and get us through this.”

Calhoun added that “the board deliberates, every single meeting, on the subject of our leaders and how well they’re doing, and do they have our confidence.”

Boeing’s board was in Chicago on Monday as the company decided between reducing Max production or temporarily halting it. Though shutting down the line rather than further reducing the rate of production is a drastic step, it could help the company in some ways.

The process of delivering the Max jets it has already built but not delivered will take at least a year, and reducing the backlog would simplify that process. It would also reduce the time the newly built planes sit idle.

But the task of delivering its growing backlog was made more complicated last month, when the FAA took control of issuing certificates of airworthiness for each airplane. That decision means Boeing won’t be able to deliver planes as quickly as it had hoped.

Boeing first suggested it might halt production of the Max in July. Last week, Boeing reached a partial settlement with Southwest Airlines to compensate it for some of the costs it has incurred as a result of the protracted grounding of the Max.

“Boeing still has credit lines and probably the ability to incur new debt,” said Scott Hamilton, managing director of the Leeham Co., an aviation consultancy. “Even so, at some point, Boeing — even with its financial resources — has to stop the cash bleeding.”

At the very moment Boeing announced it was ceasing production of its most important product, the company took steps to meet Wall Street’s expectations. As it announced the shutdown on Monday, it sent a simultaneous news release announcing a regular quarterly dividend for shareholders.

©2019 New York Times News Service

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