Boeing Sees Shift to Max Jets Smoothing Next 737 Output Bump

(Bloomberg) -- Boeing Co.’s chief executive officer quashed speculation that the planemaker would postpone a 2019 production increase for its highly profitable 737 jets as it struggles to resolve manufacturing bottlenecks.

Bumping up output to a record pace of 57 jets a month next year will be easier since most of the aircraft assembled by then will be redesigned 737 Max models, up from 40 percent to 45 percent this year, Dennis Muilenburg said at a Morgan Stanley conference Wednesday.

“We’re mid-stride on the model transition while we’re doing rate ramp-up, and that adds a degree of complexity for all of our supply chain,” the CEO said. “So I think that’s made this rate step a little more difficult than some of the others, but we understand that.”

Boeing has been contending with a swell of unfinished jets awaiting engines, auxiliary power units and other parts since the planemaker and suppliers moved to a 52-jet pace in June. More than 50 of the aircraft have been parked around Boeing’s 737 factory as mechanics tackle thousands of out-of-sequence jobs needed to make the planes airworthy and ready for delivery.

Boeing climbed 2.4 percent to $353.41 at the close in New York, the second-largest gain on the 30-member Dow Jones Industrial Average. The shares have advanced 20 percent this year, almost four times the gain of the Dow.

‘Arms Around It’

The faster pace has amplified the complexity of building current-generation and military 737s, along with three members of the Max family at the same time. Spirit AeroSystems Holdings Inc., which manufactures the narrow-body fuselages for Boeing, had cited the array of models as a source of stress and delays in its production system.

Deliveries of the 737, Boeing’s biggest source of profit, recovered in August from a July nadir and will continue on the same pace in September before accelerating above the 52-jet production rate in the fourth quarter, Muilenburg said. Boeing, he said is “confident we’ve got our arms around it.”

Spirit has already begun hiring for next year’s rate increase, CEO Tom Gentile said at the same conference. A shortage of experienced mechanics was just one of the issues that the company grappled with earlier this year as its own supplier snarls caused it to fall behind schedule on shipments of 737 fuselages to Boeing.

Boeing sent in teams of production and supplier experts to Spirit, which consists of the planemaker’s former Wichita, Kansas, operation. Boeing also called in retirees who had worked through the transition in the 1990s from the so-called 737 Classics to the NG family.

Production is back on schedule, Gentile said. In fact he expects the next increase in the production rate to be the easiest of the three for the 737 that Boeing had plotted over three successive years.

China Trade

About one-third of the 737s that Boeing produces are for Chinese customers, underscoring the stakes for the Chicago-based planemaker amid recent trade tensions. Both the U.S. and Chinese have reason not to upset the status quo, Muilenburg said.

The Chinese need Boeing aircraft for their rapidly expanding travel industry, he said.

“And if trade deficits are your concern, well, the biggest trade surplus we have in the U.S. is aerospace,” Muilenburg said. “And by far, the biggest portion of that surplus is in our business, in Boeing’s business. So, we export about 80% of what we build, and we build 90% of it here in the U.S.”

©2018 Bloomberg L.P.