The Dow has managed to levitate into the red following a Reuters report that sent the stock of Dow heavyweight Boeing higher, according to which Boeing told suppliers it will resume production of its best-selling 737 jets at a rate of 52 aircraft per month in February 2020, then stepping up to a record 57 jets monthly in June.
There is, of course a catch: the aerospace giant will only be able to boost production if the FAA clear the plane. To wit, Boeing told more than 100 suppliers during at least one Web meeting July 30 that the new schedule depended upon regulators approving the 737 MAX to fly again commercially in the fourth quarter.
Of course, since the entire report is contingent on the firm getting a greenlight, it is nothing more than a trial balloon, and also an attempt by Boeing to make the FAA responsible for the future wellbeing of Boeing shareholders. As Reuters notes, one of the sources "expressed skepticism over the timing given the intense scrutiny from regulators that grounded the 737 MAX after deadly crashes killed nearly 350 people in Ethiopia and Indonesia in the span of five months."
More to the point, there is no guarantee when regulators will clear the 737 MAX to fly again, and Boeing Chief Executive Dennis Muilenburg told analysts last month that Boeing would consider further 737 output cuts or potentially suspending production if the grounding dragged on.
In other words, Boeing production could be a record in Q2 2020... or it could be zero.
In April, Boeing cut the number of 737s it produces monthly to 42 from 52 after halting deliveries to airline customers, cutting off a key source of cash and hitting margins. Because the grounding happened when Boeing was going up towards record production levels, and each move of the sprawling supply chain has to be planned far in advance, Boeing and its suppliers are now caught between two conflicting pressures: preparing to get back on the upward path as soon as the plane is flying but also ratcheting downwards if regulators stall and the grounding continues for longer than expected.
Understandably, with no control over what the FAA decides (for once), Boeing has been tight-lipped about its production plans. CEO Muilenburg told analysts last month that Boeing expects to be able to maintain its current monthly production rate of 42 aircraft, "followed by incremental rate increases that would bring our production rate to 57 during 2020."
Two persons familiar with Boeing's production plans, who spoke to Reuters on condition of anonymity, said Boeing told suppliers it will increase production from 42 to 47 single-aisle aircraft per month in October, jibing with its guidance to investors on when it expects to win regulatory approval. It would then increase from 47 aircraft to the pre-crash rate of 52 aircraft per month in February 2020, the people, and a third person familiar with the plans, said. Boeing then would hit a record stride of 57 single-aisle jets per month in June 2020, two of the people said.
Again, all of this is contingent on FAA granting the company a green light to resume flights.
In response to questions from Reuters, Boeing spokesman Paul Bergman said Boeing updated the 737 master production schedule to reflect timing assumptions for the 737 MAX return to service plan. "While the assumption reflects Boeing's best estimate at this time, the actual timing of return to service will be determined by the FAA and other global aviation regulatory authorities and could differ from this assumption and estimate."
Also not surprisingly, algos completely missed the conditional nature of the report, and sent Boeing stock to session highs, which in turn helped move the Dow back from red on the day to well in the green.