Boeing Has Shut Down Production on the 737 MAX

shutdown

Boeing 737 MAX airplanes were grounded in March 2019 following the tragic crashes in Indonesia and Ethiopia that resulted in the deaths of over 300 people. The specific cause of the disasters has been identified as a glitch in the automated guidance control system that was intended to keep the nose of the airplane properly stabilized.

The Federal Aviation Administration and other regulatory agencies are currently overseeing Boeing’s attempt to develop software fixes. In the meantime, many air carriers have had to adjust their schedules to operate without the 737 Max aircraft in their fleets.

By the end of 2019, several airlines have now altered their planning to expect no 737 Max airplanes available for service until at least the 2nd Quarter of 2020.

Meanwhile, the CEO of Boeing has stepped down to clear the way for new management and solutions. And, adding more fuel to the fire, investigators have recently found new evidence of internal concerns among Boeing's engineers as the guidance system was being implemented.

The FAA, who initially certified the guidance system, is being understandably rigorous in approving any current fixes. Similarly, foreign aviation overseers will also demand a full and thorough review before allowing their national airlines to operate the 737 MAX again.

Production Shutdown

Even as hundreds of 737 MAX 800s and 900s are sitting idle, Boeing has continued to produce new planes to remain on schedule with projected deliveries. They assumed that the aircraft will eventually be approved to fly, with modifications, and shipments should remain on schedule.

However, on December 17, 2019, Boeing announced that the production of the 737 MAX would discontinue in January until the FAA approves its new guidance software solution.

While Boeing does not expect to reduce their workforce during this period of inactivity, many suppliers will be affected. And, as one of the United States’ primary exporters, the national economy could also be impacted negatively by Boeing’s production shutdown and loss of sales.

Further, Boeing’s massive supply chain that consists of hundreds of large and small domestic and international companies must now halt production and shipping of their components. A lingering shutdown of several months can have a far-reaching impact.

Restarting production will be challenging for Boeing’s supply chain managers as they attempt to rebuild inventory for full production after a complete stoppage.

Impact of Continued Production Stoppage

The overall financial result of the grounding of the Boeing 737 MAX airplanes appears to be enormous and growing. Airlines, mostly U.S.-based, have had to operate with existing equipment, leased replacements, and modify or eliminate routes that were projected to use the aircraft.

Chinese airlines, the second largest users of the plane, and others have already pressed Boeing for compensation for lost revenues and additional expenses that have resulted.

In July, Boeing allocated $5 billion to compensate companies affected by the grounding. However, that number was based on re-approval occurring by the end of 2019.

More claims from customers and suppliers are likely to occur once the situation is resolved.

Reputation Impact

Boeing’s reputation could be severely affected. Beyond the expected passenger fears of recurring problems, airline leasing companies, airlines, and even national governments are voicing reluctance to rely on Boeing to the same extent as in the past.

Airbus and other aircraft producers seem to be benefitting from the 737 MAX grounding. Several companies, including U.S.-based American and Frontier Airlines, have placed orders for Airbus A321neo single-aisle jets.

While it is difficult to say whether these orders would have gone to Boeing under different circumstances, Airbus sales are booming.

And, as in the past, crashes have damaged airline and airplane manufacturer reputations for some time, eventually these prejudices tend to fade away.