wants to ramp up production of its 737 MAX jet to generate cash flow and help repair its balance sheet, but that’s easier said than done. Problems getting coins slows down the process.
Supply chain issues that have slowed production of the plane will limit “short-term upside in deliveries,” RBC analyst Ken Herbert wrote Monday. This could be a small headwind for the stock.
Judging by the market reaction, the problem may not be too serious.
(ticker: BA) The stock has fallen around 1.1% since reports of the production slowdown emerged late last week. The
is down around 0.2% over the same period.
One reason for the muted reaction is that the slowdown was no surprise. Boeing Chief Financial Officer Brian West discussed supply chain issues limiting production on May 11 at an investor conference. The problem he cited was a fender connector. A part can create problems from one end of any assembly line to the other.
Boeing is building the 737 MAX in Renton, Washington. The assembly line is designed to move constantly, like those in the automotive industry, although it has fewer stations and does not move as fast.
There are about eight separate stations where a lot of work is done when building a MAX. Normally there is continuous movement, but lately the MAX jets have stopped as they go from station to station. That’s part of pausing or slowing down, The Wall Street Journal reported on Friday.
Boeing could have maintained the production rate, but that would have required the company to revert to near-finished planes to complete them. This increases costs and is an approach that Boeing has tried to move away from.
Eventually, Boeing plans to reach 31 MAX jets per month. This would involve approximately 90 MAX jets delivered each quarter.
In the first quarter, Boeing delivered 86,737 aircraft, mostly MAX jets. Some of them, however, were likely delivered from the inventory of hundreds of MAX jets produced while the aircraft was grounded around the world between March 2019 and November 2020.
Investors would like to see stable production and deliveries from Boeing. The company planned to hit 31 MAX jets per month this quarter. While the latest parts-related slowdown could jeopardize that schedule, Boeing can still speed things up in June.
Looking ahead, Wall Street expects around 110 737 model deliveries in the second quarter. This will again be a combination of new production and new inventory.
Whether or not Boeing will hit that mark is anyone’s guess. Investors have no choice but to face the volatility of deliveries.
Lockdowns to fight Covid-19 in China add uncertainty. Typically, a quarter of MAX orders end up going to China, but Chinese airlines haven’t taken many jets lately. They didn’t need it: Air travel in China fell sharply in the second quarter as many people were unable to travel.
Write to Al Root at [email protected]