Boeing CEO: Lower MAX Output Will Slow Recovery

Boeing’s lower 737 MAX production will slow the pace of its recovery, as it faces a “difficult” period following a harrowing mid-air blowout on one of its jets in January, CEO Dave Calhoun told employees Wednesday.

Calhoun, who will step down as CEO around the end of the year, acknowledged Boeing was “in a tough moment” in the near term but reiterated that the company was deliberately slowing the system to improve quality and safety.

“Lower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else,” he added, as the planemaker comes under intensifying pressure following the January accident on an Alaska Airlines-operated MAX 9 aircraft.

Boeing is, however, seeing early signs of more “predictable, stable and efficient cycle times in (its) 737 factory,” and expects this will continue to slowly improve, Calhoun said.

While he did not specify current production levels, Reuters reported earlier this month that output of its cash-cow 737 MAX had fallen sharply amid a step up in factory checks by U.S. regulators.

Analysts have warned the slow pace of deliveries risks delaying Boeing’s financial and production goals. Boeing’s CFO said last month that the company will need more time to hit a goal outlined in 2022 for an annual cash flow of about $10 billion by 2025 or 2026.

The goal is seen as a key milestone as Boeing works to accelerate its recovery from an earlier crisis after two MAX jets crashed in 2018 and 2019.

The company also expects a slower increase in the production rate and deliveries of its 787 widebody jets as the U.S. planemaker wrestles with supplier shortages “on a few key parts,” a memo showed on Monday.

Following the Jan. 5 accident on an Alaska Airlines-operated jet, the Federal Aviation Administration has imposed a cap on production of the MAX jets and told Boeing to develop a comprehensive plan to address “systemic quality-control issues.”

However, demand for new planes remains strong amid constrained production at Boeing and its rival Airbus, though the European planemaker has increased its lead in the narrowbody market in the first quarter.

Calhoun said Boeing would have “largely delivered” 737 and 787 in inventory by the end of the year, bringing in much-needed cash. He added that its defense business, which has been losing money in recent quarters, “will be progressing toward more historical levels of performance.”