Boeing Faces New Production Snarls for Cash-Cow 737 Jetliner

(Bloomberg) -- Boeing Co. is working through cascading supplier problems that will hamper third-quarter deliveries of its 737 jetliner, the planemaker’s largest source of profit.

Hiccups at the makers of fuselages and engines, combined with record 737 output, have contributed to a production logjam at the planemaker’s Seattle-area factory. Like Airbus SE, Boeing is starting to feel the consequences of its fastest-ever tempo for narrow-body aircraft as suppliers struggle to keep pace.

Boeing now expects to deliver fewer of the 737s than it makes during the third quarter, before accelerating shipments by the end of the year, Chief Financial Officer Greg Smith said Wednesday. The company is working to streamline production at its single-aisle plant while also investing to help suppliers tackle bottlenecks.

At the 52-jet monthly production tempo that Boeing adopted in recent months for its 737, “a day, an hour, two hours matter,” Smith told a Jefferies conference. “We have a recovery plan in place for them and us, and it’s about executing on that plan.”

The planemaker’s shares dipped 0.8 percent to $348.04 at 1:42 p.m. in New York.

Behind Schedule

Among the supplier glitches confronting Boeing are airframes shipped hours late or out-of-sequence by Spirit AeroSystems Holdings Inc.. A propulsion joint venture of General Electric Co. and France’s Safran SA, has also fallen a few weeks behind schedule in its Leap engine shipments to both planemakers.

Airbus SE parked about 80 of its popular A320neo family -- down from a peak of 100 jetliners -- as it awaited delayed engines from Pratt & Whitney. At least 40 unfinished aircraft are parked around Boeing’s facility and an adjacent air strip as mechanics scramble to install parts that arrived late or out-of-sequence, the Seattle Times reported last week.

All told, Boeing has about $1.8 billion of 737 inventory sitting on the tarmac at Renton, Ron Epstein, an analyst with Bank of America Merrill Lynch, said in an Aug. 6 report.

Cash Inflows

“The problem may likely get worse for Boeing before it gets better,” Epstein wrote. “That said, Boeing is building inventory until it receives engines and other components; however, once the parts arrive and deliveries are made, Boeing will have large cash inflows from airline customers and working capital.”

With the 737 Max and A320neo family jets largely sold out through 2024, Boeing and Airbus are contemplating another set of production step-ups next decade. While the European planemaker has publicly discussed boosting output to a 70-jet or even 75-jet pace, Boeing has been more cautious.

The Chicago-based planemaker is studying the capital investment, tooling and supplier hurdles it would need for future rate hikes -- as well as how long the higher output could be sustained, Smith said.

“The demand is there,” he said. “But if your supply chain and yourself can’t meet that demand, there is no upside.”

To contact the reporter on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren, Tony Robinson

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