Boeing’s plans to increase production and unwind stored inventory on its two largest commercial programs, the 737 MAX and 787, hinge largely on regulatory approvals that the company is confident are coming, but the timing of needed sign-offs remains unclear.
Monthly 737 program production is up to 19/month and Boeing is sticking with its announced plan of boosting the rate to 31/month in early 2022, the company confirmed Oct. 27.
Deliveries are steadily ramping up as well and should continue to climb. The company expects to deliver “most” of the remaining aircraft in its stored inventory of 370 by the end of 2023, CFO Brian West said Oct. 27 on the company’s third-quarter (Q3) earnings call.
The time line is longer than the one Boeing laid out when 737 MAX deliveries resumed in late 2020. Part of the reason is the need to reconfigure aircraft that have been canceled and re-sold to different customers, CEO Dave Calhoun said.
Key to both the production and delivery ramp-up is China’s approval to permit the 737 MAX to fly again, Calhoun emphasized on the company’s Q3 earnings call.
“As we previously communicated, the timing of remaining regulatory approvals will shape our near-term delivery plans and our production rate ramp beyond 31 per month,” he said.
Calhoun is confident that Civil Aviation Administration of China approval will come “by the end of the year” and deliveries to Chinese carriers will resume “in the first quarter of next year.”
Chinese airlines operated nearly 100 of the 385 737 MAXs in service when the model was grounded in March 2019 following two fatal accidents. West said about one-third of the 737 MAXs in stored inventory are slated for Chinese customers.
As air travel demand slowly rebounds following 2020’s steep downturn, narrowbodies and short-haul flying are leading the way. This combined with China’s share of pending deliveries means the country’s 737 MAX approval is more important for the inventory burn-down than the production ramp-up. J.P. Morgan expects the 737 monthly production rate to hit 31 in early 2022 “regardless of when China certifies the MAX,” analyst Seth Seifman wrote in an investor note.
The 787 program’s near-term path is less certain. Boeing is still working with the FAA to gain approval on the analysis and inspection work it must do to correct production issues and resume deliveries, which have been paused since May.
Calhoun said that while Boeing has “clear line of sight on the issues,” the company has to “give our own teams and then the FAA time to get through all their analytics and agree with everything that we’re doing with respect to the rework plans” and related requirements.
A newly revealed issue with non-conforming titanium parts from a supplier has added to the workload, Calhoun confirmed.
Boeing said it has 105 787s stored up. The program’s production rate sits at two per month, down from five per month earlier in 2021—a move made in part to shift resources to the inspection and re-work. Boeing is not sure when its 787 backlog will be cleared out, nor when production will increase.
“We are well through it, but we’re not through it,” Calhoun said. “I wish I could give you a little more clarity. It’s going to be when it’s going to be with respect to increasing the rates and also beginning deliveries because we really do have to get through these issues that prevent us from getting” FAA approvals, he added.
“This is not a problem with the FAA,” Calhoun said. “They’re doing their work. We just have to solve these things by ourselves and bring it to them and make sure that they agree with our judgments.”
Boeing said the production slow-down and necessary re-work led to recording $183 million in 787 “abnormal costs” in Q3.
“These costs will continue in future periods while we complete the rework, and we remain at an abnormally low production rate,” West said. The company is projecting a total of $1 billion in abnormal 787 costs.
The 787 quality difficulties coupled with no deliveries helped keep Boeing in the red for the quarter, as it reported a $132 million net loss. Total revenues rose 8% to $15.3 billion compared to the year-earlier period.
Boeing’s Commercial Airplanes unit posted an operating loss of $693 million, about half of its 2020 Q3 loss. Commercial revenues rose 24% to $4.5 billion, thanks largely to 737 MAX deliveries, which did not start again until late in the 2020 fourth quarter.
Near-term financials will get a boost from a 777 program change that will accelerate freighter production, the company said
“Given continued strength in freighter demand, we have coordinated with our supply chain and are increasing 777 freighter production capacity in the near term,” Calhoun said. “We now expect 2022 777 deliveries to be relatively in line with 2021.” Boeing delivered 20 777s in the first nine months of the year.
Boeing’s 777 production rate is at about two per month, including 777-9s that are not certified. The change means Boeing will be producing more aircraft type it can deliver now—the freighters—as the 777-9 certification effort and production ramp-up continue.
Calhoun said Boeing remains confident that deliveries of the newest 777 variant will start in late 2023.
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