Boeing Confirms 737 Production Will Be Halted In January, No Layoffs

Update (1710ET): Boeing has issued a full statement confirming the rumors that they will shutdown production of the 737 MAX.

Safely returning the 737 MAX to service is our top priority. We know that the process of approving the 737 MAX's return to service, and of determining appropriate training requirements, must be extraordinarily thorough and robust, to ensure that our regulators, customers, and the flying public have confidence in the 737 MAX updates. As we have previously said, the FAA and global regulatory authorities determine the timeline for certification and return to service. We remain fully committed to supporting this process. It is our duty to ensure that every requirement is fulfilled, and every question from our regulators answered. 

Throughout the grounding of the 737 MAX, Boeing has continued to build new airplanes and there are now approximately 400 airplanes in storage. We have previously stated that we would continually evaluate our production plans should the MAX grounding continue longer than we expected. As a result of this ongoing evaluation, we have decided to prioritize the delivery of stored aircraft and temporarily suspend production on the 737 program beginning next month.

We believe this decision is least disruptive to maintaining long-term production system and supply chain health. This decision is driven by a number of factors, including the extension of certification into 2020, the uncertainty about the timing and conditions of return to service and global training approvals, and the importance of ensuring that we can prioritize the delivery of stored aircraft. We will continue to assess our progress towards return to service milestones and make determinations about resuming production and deliveries accordingly.

During this time, it is our plan that affected employees will continue 737-related work, or be temporarily assigned to other teams in Puget Sound. As we have throughout the 737 MAX grounding, we will keep our customers, employees, and supply chain top of mind as we continue to assess appropriate actions. This will include efforts to sustain the gains in production system and supply chain quality and health made over the last many months.

We will provide financial information regarding the production suspension in connection with our 4Q19 earnings release in late January.

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Update (1635ET):Boeing shares are now down over 6% after The Wall Street Journal confirms the planemaker will  temporarily halt production of its 737 MAX jetliner in January, according to a person briefed on the matter.

As we noted earlier, Boeing’s decision to halt production of the 737 MAX is likely to reverberate throughout the U.S. economy as it is the nation’s largest manufacturing exporter and one of the top private employers.

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Recruitment agencies of Chinese airlines told the South China Morning Post (SCMP) that plans to hire foreign pilots for Boeing's 737 Max have been put on hold since the aircraft was grounded nine months ago following two crashes. 

China's aviation market is one of the fastest-growing in the world. Airlines in the country were ecstatic when their fleets were updated and expanded with 737 Max planes but have since become irritated in the prolonged grounding. 

Now new concerns are developing behind an uncertain timeline that could push the groundings well into 2020. 

We reported on Monday morning that Boeing could temporarily halt the production of the aircraft as it would suggest groundings could last a lot longer than previously thought. 

US regulators recently criticized Boeing for providing unrealistic timelines. 

Andre Allard, president of AeroPersonnel Global in Montreal, said, "we've seen airlines suspend recruitment of 737 pilots...Many of these airlines had the MAX on order. That evidently changed their plans" as the production of the plane could be halted. 

SCMP said by late 2016, Chinese airlines had more than 1,000 foreigners piloting the planes. 

The Federal Aviation Administration said the 737 Max wouldn't complete required approvals until 2020. 

As the timeline of ungrounding is likely pushed out, and production cuts could be imminent, this could be more bad news for Boeing as it appears airlines in China are limiting their expansion of the 737 Max. 

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Sources have told The Wall Street Journal that Boeing could temporarily halt production of the 737 Max amid concerns the timeline of ungrounding the aircraft could be pushed further out. The decision to disclose the fate of the 737 Max production could arrive as early as Monday.

Boeing hosted a regular board meeting on Sunday in Chicago. Sources said the fate of the 737 Max production comes days after US regulators criticized Boeing for providing unrealistic timelines for when the plane will return to the skies. 

In April, Boeing slashed production by 20% from 52 to 42 planes per month. A more extended cut or even production halt could be absolutely damaging to the global aerospace industry, as any reduction in planes could ripple down the supply chain and cause financial hardships for suppliers. 

Boeing's board meeting is expected to conclude on Monday. Sources weren't exactly sure when the production-related announcement will be released. 

"We continue to work closely with the FAA and global regulators towards certification and the safe return to service of the Max," Boeing stated. "We will continue to assess production decisions based on the timing and conditions of return to service, which will be based on regulatory approvals and may vary by jurisdiction."

We've noted in the past that production cuts could have severe consequences for the US economy. Over 600 suppliers provide 600,000 parts needed for each plane; the brunt of the shock would be seen down the chain at smaller firms. 

Some Max suppliers have already cut production rates after Boeing reduced plane output by 20% in April. There are other reports that some suppliers have already furloughed employees and shut down equipment as the groundings enter the ninth month.

"It's easier to ramp down gradually and then ramp back up," said John Scannell, chief executive of Moog Inc., which makes control motors for the MAX.

The upcoming production decision isn't easy for Boeing since two of its Max planes experienced flight control system malfunctions and crashed in the past year or so, killing 346 people. 

With no clear timeline on when the planes can return to the skies, and production likely slashed in 2020 - this could further weigh on Boeing shares: