Boeing expects its 737 Max will be ready to fly by year-end, but warned it may be a phased return to service, with some countries allowing it to fly before others, executives said Wednesday on their third quarter earnings call.
“Looking forward, we target regulator approval for the 737 Max return to service to begin this quarter,” CEO Dennis Muilenburg said. “As we have said before, however, it’s the FAA and other regulatory authorities who will ultimately determine the timing and conditions of return to service in each relevant jurisdiction.”
Boeing executives, who not long ago were combative toward media and investment analysts, took a conciliatory tone on Wednesday, repeatedly apologizing for the troubles with the Max program. They promised to fix structural issues at the company, pointing to changes made recently by the board of directors. In the past week, Muilenburg lost his title as board chairman, and Kevin McAllister was let go as president and CEO of Boeing Commercial Airplanes.
Boeing executives even mentioned instant messages that surfaced last week showing two top test pilots were wary about the Max’s advanced features more than two years before the first crash, with CEO Dennis Muilenburg saying, “we understand the scrutiny it is receiving.” After the messages leaked, the head of the Federal Aviation Administration wrote to Boeing asking why his agency had not learned of the text chain earlier.
Still, despite the recent drama, Boeing executives said they remain on target to finish software updates requested by regulators, and suggested they were bullish they would finally return their flagship narrowbody plane to service.
Then again, investment analysts have heard for several months Boeing was optimistic about a fix, and at least one questioned if the aircraft would be ready as quickly as it expects. Until recently, Boeing had said it planned have a solution to the FAA by September, but that deadline has passed.
“The review cycles have taken a little longer than originally planned,” Muilenburg said. “But I think that’s a good representation of the fact that we’re driving deep into the documents and we’re answering all the questions. And the FAA has taken the time to make sure we get it right. I think that level of scrutiny is good.”
The United States is likely to be the first country to clear the airplane, in part because Boeing is a U.S. company with close ties to the regulator.
Increase in Production
In a best-case scenario, Boeing executives said they want to build more Max jets. In April, Boeing said it would reduce its rate to 42 jets per month from 52, but the company may increase that when regulators clear the jet.
By late 2020, Boeing could produce 57 jets per month, the company indicated.
Boeing also must deliver the hundreds of airplanes it has built during the grounding, many now sitting in parking lots in Washington state.
“After return to service, we expect the 737 Max airplanes produced during the grounding and included within inventory will be delivered over several quarters with a majority of them delivering in the first year,” Chief Financial Officer Greg Smith said.
Boeing also outlined a worst-case scenario for its Max production rate. If regulators do not clear the Max in a timely manner, Muilenburg said, options include “a temporary shut down of the Max production line.”
Interaction with Airlines
Boeing said it will work with airlines to help them to return airplanes to service. Like a car that hasn’t been driven in months, a parked airplane will need some care before it can fly again. Reuters recently estimated each jet requires 100-150 hours of work prior to the first passenger flight.
Most North American airlines have said they don’t think they can fly the airplane until January or February, even if regulators clear it earlier.
“We’ll be working tail number by tail number with our customers to ensure they can bring the fleet up back successfully and then get back to full revenue-bearing operations,” Muilenburg said. “That’s why you see a bit of a time lag between the airworthiness directive and what our customers are now quoting as going operational dates.
Boeing said it will also bring in a group of non-management pilots from airlines to let them evaluate how the airplane handles after the technological fixes. Other pilots will evaluate Boeing’s training materials, executives said.
Boeing executives acknowledged carriers are expecting compensation for their financial losses. Smith, the CFO, said Boeing will determine compensation on a customer-by-customer basis. Often, airlines receive discounts on future orders.
“We will look at various forms of economic value that we can provide,” Smith said. “We expect any concessions or other considerations to be provided over a number of years and therefore you can expect the impact to our cash flow to affect 2019 and beyond. We continue to see this impact to be more front-end loaded in the first few years, but of course, we will be dependent on individual conversations with customers.”
Almost all recent scrutiny has surrounded the Max, with airlines generally pleased with other Boeing models, including the 787.
But Boeing executives said Wednesday they have received fewer orders for the 787 from Chinese airlines than expected. As a result, they said, they will cut monthly production from 14 to 12 for about two years.
Boeing executives said contentious discussions about trade may be driving the lack of orders.
“Given the timeline and the fact that we don’t have firm orders from China at this point, we’re within production lead times and we have to make the decision on the 787 line, which is what you see reflected in our announcement today,” Muilenburg said. “We’re going to continue to monitor and support the China trade discussions.”
Boeing also told investors it now expects to deliver its first next-generation Boeing 777, called the -9, in early 2021, rather than 2020. That was expected, due to issues with engines produced by General Electric.
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