Boeing, key supplier agree on slow restart to 737 MAX production

Aircraft fuselages lined up for assembly

Recent news that federal recertification of the 737 MAX might not take as long as Boeing estimated was welcomed by airlines, but it is becoming clear that the aircraft’s production line won’t return to normal for a long time.

On Thursday, Spirit AeroSystems [NYSE: SPR] in Wichita, Kansas, announced that it had reached an agreement with Boeing [NYSE: BA] to gradually ramp up deliveries throughout the year for a total of 216 fuselage sets in 2020. The company does not expect to achieve a production rate of 52 shipsets per month, the rate of Boeing production prior to the 737 MAX grounding last March, until late 2022.

“The rate agreement is based on several assumptions, including Boeing’s expected production rate and the successful return of the 737 MAX to service,” Spirit Aero said in a statement. 

Boeing this month temporarily shut down the 737 MAX production line in Renton, Washington, when it became clear the Federal Aviation Administration wouldn’t clear the plane to fly by late last year, as Boeing officials had been pushing for. The agency is reviewing a Boeing software fix to correct a flaw in the automated flight control system implicated in the crash of two 737 MAX aircraft that killed 346 people, as well as other technical and manufacturing issues discovered during an end-to-end audit of the MAX program.

The crisis is not only hurting Boeing — $18.6 billion in charges for production overhead and compensation for airlines and a $1 billion net loss in the fourth quarter — but suppliers and communities across the country.

Spirit also suspended production and three weeks ago announced plans to lay off 2,800 employees to preserve cash. Spirit makes the MAX’s fuselage and other components and the MAX represents more than half the company’s revenue. Last week, third-party logistics provider DB Schenker said its unit that supports Spirit Aero plans to eliminate 255 positions.

The timing for regulators to lift the flight ban is still confusing. On Jan. 21, Boeing conceded that the FAA and global counterparts would likely not rescind the grounding order until at least mid-2020, prompting airline customers to pull the MAX out of their flight schedules until June. Then new Boeing CEO David Calhoun said the company would slowly restart production a few months ahead of the expected recertification. On Friday, the FAA said Administrator Steve Dickson spoke with officials at U.S. airlines that operate the 737 MAX “to reiterate that the FAA has set no time frame for completion of certification work on the aircraft. While the FAA continues to follow a thorough, deliberate process, the agency is pleased with Boeing’s progress in recent weeks toward achieving key milestones. 

“Safety is the top priority, and the FAA continues to work with other safety regulators to ensure that Boeing has addressed all known issues with the aircraft,” the FAA said in statement. 

“We’re actually encouraged at what we hope is a more realistic timeline and target,” said United Airlines [NASDAQ: UAL] President Scott Kirby on an earnings call with analysts a week ago. United officials say they don’t anticipate flying the MAX this summer.

The MAX was Boeing’s best-selling plane until it was grounded. Airlines are eager to get the plane in service because it can carry more passengers than earlier 737 versions and is more fuel efficient. As a narrowbody plane, its cargo capability is limited to loose pieces and small shipments, but the schedule frequency of passenger airlines is nonetheless desirable for shippers needing fast delivery.