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Boeing Shares Slide on 737 MAX Production Pause; Return to Service for Grounded Jet Remains 'Uncertain'

Boeing shares are set to open at a four-month low Tuesday after the world's biggest planemaker suspended production of its grounded 737 MAX jet and cautioned that the timing of its return to service remains "uncertain".

Boeing Co.  (BA) - Get The Boeing Company Report shares extended declines Tuesday after the world's biggest planemaker said it would indefinitely suspend production of its grounded 737 MAX jet after failing to meet a self-imposed target for its recertification from the Federal Aviation Administration. 

Boeing reached its decision late Monday following a two-day board meeting in Chicago that came after the FAA's chief administrator, Steve Dickson, cautioned that multiple milestones need to be met before the MAX could be granted clearance. 

Boeing had tabled a December return for the workhorse jet, which was grounded last spring following two fatal crashes over a five-month span between 2018 and 2019 that killed 346 people in Ethiopia and Indonesia and has cost the company more than $9 billion. 

"Throughout the grounding of the 737 MAX, Boeing has continued to build new airplanes and there are now approximately 400 airplanes in storage," the company said in a statement. "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," Boeing added. "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."  

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Boeing shares were marked 1.07% lower at the start of trading Tuesday to change hands at $323.69 each, the lowest since August 15 and a move that would drag the stock some 23% lower from where it traded prior to the Ethiopian Airlines crash on March 10.

The planemaker said last week that it booked 30 new orders for the 737 last month, much of which came from the Dubai Airshow in the United Arab Emirates, with Turkey's Sun Express buying 10 737 MAX 8 planes, while an unidentified customer --reportedly Kazakhstan's Air Astanta 00 signed up to buy 20 more 737s.

Boeing also said it would increase costs related to the grounded 737 MAX by around $900 million, taking the total to around $3.6 billion, but noted at the time that it forecast production rising from 42 planes a month to 57 planes per month by the end of 2020.

It is clear that the FAA has been frustrated with Boeing’s pressure and public statements regarding the MAX," said Cannacord Genuity analyst Ken Herbert. "Boeing is still looking to complete several of its key milestones soon, but this has taken longer than expected." 

"While Boeing has not indicated that the pause will be in place until the successful return to service, at a minimum it will want better visibility on the key milestones, including the JOEB training requirements," he added. "Moreover, it is likely Boeing will gradually “wake-up” the factory after the pause, and it could take several months to get rate back to the 42/month level."