Boeing counts on supply chain for recovery from 737 MAX grounding

Dive Brief:

Three weeks after Boeing cut production levels for the 737 MAX from 52 aircraft per month to 42, the delivery of new planes is still on pause following two deadly crashes involving the model, Boeing CEO Dennis Muilenburg said on the company's earnings call this week.
"This decision will also enable us to invest in the broader health and quality of our production system and supply chain," Muilenburg said. "We will continue to assess our production plans, and we'll make decisions at various waypoints as to whether further rate adjustments are needed based on information we have at that time."
Boeing delivered 50 fewer 737 MAX planes than planned as a result of the grounding, which has hit the company's revenue, operating income and cash, according to Boeing CFO Gregory Smith. The return of the 737 MAX fleet to operation and full production levels remains "uncertain," Muilenburg said.

Dive Insight:

Boeing's ability to recover will depend largely on regulators deciding to allow the plane to again take to the skies, analysts said.

"In our view, we continue to see risks in Boeing stock until the US, European, and other regional aviation regulatory bodies certify the MAX fix and the aircraft returns to service," Bank of America Merrill Lynch Global Research said in an analyst note following the call.

Boeing also sees its supply chain playing an important role in its recovery, Smith said. The agility of the supply chain will be important to ensure planes are delivered quickly and production ramps up accordingly.

Once regulators clear the plane to fly again, the company will start getting orders for the plane out the door again and work to get needed updates to planes already in the hands of customers, Muilenburg said.

"We have teams that are ready, positioned by tail number with the 737 MAXs that are already out in the fleet to get those airplanes ready and back up and flying for our customers, and we also have an integrated introduction plan including our supply chain that will allow us to pivot and move forward," he said.

But some analysts still see the company's supply chain as an additional vulnerability.

"Risks specific to Boeing would include increased supply chain operational issues which cause significant delays in deliveries," UBS Investment Bank said in an analyst note. "If the company is unable to continue to squeeze cost out of their operations and the supply chain it could result in margins not reaching our estimates."