((Automated translation by Reuters, please see disclaimer https://bit.ly/rtrsauto))
(Updated stock price at close of trading in paragraph 6, title changed) by Tim Hepher and Allison Lampert
Production of the Boeing BA.N 737 MAX has fallen sharply in recent weeks as U.S. authorities tighten factory controls and workers slow the assembly line outside Seattle to complete ongoing work, sources said industrial companies to Reuters.
The FAA imposed a cap of 38 jets per month following a blowout on a 737 MAX in January blamed on an assembly error. But the monthly production rate fluctuates well below that level, and by the end of March it fell to single digits, they said.
Boeing referenced comments from its Chief Financial Officer, Brian West, who said last month that the company was taking comprehensive steps to boost quality and build trust – including reducing the amount of work called “in progress” or “work in progress.” pending” – while the FAA increases the number of audits.
Mr. West told a Bank of America event that the FAA was “deeply involved and undertaking a tougher audit than anything we’ve seen before.”
Boeing also says it has made efforts to reduce the amount of “work in progress,” meaning planes moving down the line that still need to be repaired from previous workstations. This has the effect of slowing down overall production and, therefore, deliveries.
Boeing came under increased scrutiny following the loss of a door plug on an Alaska Airlines jetliner in January. Shares of the plane maker ended down 1.7%.
Airplane manufacturers are paid for their planes upon delivery, but the underlying production rate dictates the pulse of an industrial system that powers thousands of aerospace suppliers around the world.
Boeing’s production slowdown is also expected to spill over into the airline industry, with carriers reducing the number of flights or extending existing jet leases to meet demand.
Traditionally, production and deliveries went hand in hand, but the grounding of the MAX in 2019 and 2020 and disruptions due to the pandemic created a stockpile of surplus aircraft, meaning it is more difficult today to Establish the production rate based on deliveries.
To try to understand how quickly Boeing’s main cash cow is built, independent experts study the number of first test flights conducted each month for each new plane.
Rob Morris, global head of consulting at Cirium Ascend, said Boeing flew 13 MAXs in March, following 11 in February. The rate reached a peak of around 38 flights per month in mid-2023, according to Cirium data.
Airbus, by contrast, flew an average of 46 of its competing A320neos per month during the first quarter, Morris said.
SURPLUS OF ENGINES
Boeing’s European rival has its own supply constraints and is producing around 50 A320neo family planes per month, below the 58 initially planned at the start of the year, according to industry sources.
It also faces a continuing shortage of maintenance capacity for some engines, causing planes to sit idle for months once in service.
But as Boeing had to sharply slow production to convince FAA inspectors that its industrial operations were running smoothly, Airbus gained a comfortable market lead in the best-selling category of single-aisle planes.
Any prolonged production decline could impact engine maker CFM International, jointly owned by new standalone supplier GE Aerospace GE.N and France’s Safran SAF.PA .
As the sole engine supplier for the MAX, CFM gets paid for the engines when the fully completed planes are delivered to airlines – not when the parts are sent to Boeing, as is the case for most suppliers .
Larry Culp, chief executive of GE Aerospace, said last month that Boeing continues to receive deliveries of LEAP-1B engines at the contract rate.
Nick Cunningham, an analyst at Agency Partners, said companies would try to maintain the status quo for as long as possible, but some industry sources questioned how long the resulting engine surplus would last. CFM had no immediate comment.
In December 2019, when the grounded 737 MAX was in its eighth month of safety crisis, halting production of the plane, CFM reached an agreement to continue supplying 10 engines per week to Boeing, which which she described as the minimum level necessary to cover costs.
CFM also struck a deal where Boeing would pay for the engines over a two-year period, Safran said later.