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Boeing may temporarily halt Max production

By SCOTT REEVES in New York | China Daily Global | Updated: 2019-07-25 23:34

Southwest Airlines Boeing 737 Max aircraft are parked on the tarmac of Southern California Logistics Airport in Victorville, California, the United States, July 19, 2019. [Photo/IC]

Boeing on Wednesday reported a $2.94 billion second-quarter loss — the largest in company history — because its top-selling MAX jet remains grounded after two fatal crashes and deliveries of new planes in the top-selling sector have ceased.

CEO Dennis Muilenburg warned that Boeing may cut or temporarily halt production of the MAX if the US Federal Aviation Administration (FAA) doesn't recertify the plane in September as the company now anticipates.

"Then we'll have to evaluate alternatives and those could include different production rates (or) a temporary shutdown of the line," he told analysts on a conference call. "(It's) not something we want to do, but an alternative we have to prepare for."

For the same period a year earlier, Boeing reported a profit of $2.2 billion. Sales dropped 35 percent to $15.75 billion in the current quarter and the company delivered only 90 planes with MAX shipments on hold. Boeing reported a loss of $5.21 a share, the first loss since a $234 million deficit in the second quarter of 2016 when the company took charges on the 787, 747-8 and KC-46A Pegasus military tanker.

"Boeing's earnings are an indication of how profitable the MAX has been and what a cash cow it's projected to be in the future," Robert Mann, president of R.W. Mann & Co, an aviation consultancy, told China Daily.

"The company's survival would be in question if Boeing were a single-line manufacturer, but it's a diversified company with military and service sectors. The problem is more than a gnat on an elephant's back, but second quarter earnings are not a lethal blow."

Cutting production below the current 42 planes a month would disrupt the supply chain and ripple throughout the industry. Such a move would further strain Boeing's cash flow which fell $1.01 billion in the red in the second quarter, Mann said.

"Technically, the issue is solvable," Mann said. "But if a separate certification is required for the MAX — if it's treated as a separate type of aircraft rather than as a 737 — that will require additional training for the flight crew. If that happens, return of the MAX will be delayed further and there will be increased expense for the airlines."

Boeing hopes MAX jets will return to service in the fourth quarter, but some analysts believe the plane will remain grounded into 2020. Boeing has submitted updated software for the anti-stall system implicated in the fatal crashes to the FAA for review, but there is no schedule for approval.

The company delivered 90 commercial airplanes in the second quarter valued at $4.72 billion, including eight designed for freight service, but the division lost $4.94 billion. The defense unit reported a $975 million profit after revenue climbed 8 percent to $6.61 billion. Global service revenue increased 11 percent to $4.54 billion and the unit earned $687 million.

Boeing warned that it may not be able to deliver its newest plane, the 777X, by the end of 2020 as planned due to previously disclosed trouble with General Electric's engine.

Analysts at Citigroup said airlines will schedule flights without the MAX if the jet doesn't return to service in the fourth quarter. United Airlines said it will buy 19 used Boeing 737-700 jets to fill the gap created by grounded MAX aircraft. The 737-700 is an older, less fuel-efficient airplane introduced in 1993.

Boeing MAX jets were grounded worldwide following crashes March 10 in Ethiopia and Oct 29, 2018, in Indonesia that killed a total of 346 passengers and crew.

Boeing's stock closed Wednesday on the New York Stock Exchange at $361.43 a share, down $11.64, or 3.12 percent from Tuesday's close. The 52-week range is $292.47 to $446.01 a share.

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