Boeing halts 737 MAX deliveries due to electrical issues, shares fall

An aerial photo shows Boeing 737 MAX airplanes parked at the Boeing Factory in Renton, Washington, US. Photo: Reuters

Boeing Co said on Wednesday it paused 737 MAX deliveries over an electrical issue that has partly re-grounded the fleet, and sounded notes of caution over surging coronavirus cases in India and simmering U.S.-China geopolitical tensions.

Boeing's shares fell nearly 3% after the U.S. planemaker reported its sixth straight quarterly loss and a charge on its high-profile Air Force One presidential jet program.

The smaller loss and a barrage of technical and financial challenges clouded optimism over a resurgent U.S. domestic travel market fueled by vaccinations and pent up demand.

"We view 2021 as a critical inflection point for our industry," Chief Executive Dave Calhoun told analysts on a conference call.

Boeing has paused 737 MAX deliveries to address the electrical issues, and expects to "catch up on deliveries over the balance of the year," Calhoun added. He also said he expects China to lift its grounding order on the 737 MAX in the second half of 2021.

But Calhoun earlier told CNBC he could not predict when the 737 MAX's electrical grounding issue would be resolved, and doubled down on caution over the long-off recovery of international travel, citing the pandemic's impact and relations between Washington and Beijing.

Boeing has delivered more than 85 737 MAX jetliners, out of a backlog of some 400 jets, since it was cleared by most regulators to re-enter service late last year following two fatal crashes, lifting revenue and cash flow.

But Boeing's workhorse for short-haul travel remains banned in the rebounding China market, where Boeing remains exposed to long-simmering geopolitical tensions that have continued under U.S. President Joe Biden.

A new electrical grounding problem found on some models of the jet earlier this month has also cast a shadow on Boeing's freshly re-affirmed plans to increase 737 MAX production to 31 planes per month by early 2022. Airlines have pulled dozens of 737 MAX jets from service, awaiting repairs.

Last week, Boeing said it extended its required retirement age of 65 to 70 to allow Calhoun, 64, to stay in the top job.

Calhoun aims to stay in the role until he is 70, insiders say. His decision surprised many in the industry who saw him as a shorter-term crisis manager and triggered the upcoming exit of Boeing's well-regarded CFO and heir-apparent for the job, Greg Smith, 54.

Boeing also reaffirmed a sharply-reduced production rate of five 787 jetliners per month after consolidating production at its South Carolina factory.

It is facing reduced demand due to the pandemic's impact on longer-haul travel, and a growing price tag for 787 retrofits due to production defects embedded in dozens of the advanced carbon-composite jetliners.

It still expects to deliver the first 777X mini-jumbo in late 2023 despite certification and design challenges, with a combined output of the new 777X and its 777 legacy model of two a month.

The U.S. planemaker reported a core operating loss of $353 million in the first quarter, its sixth-straight quarterly loss, compared with a loss of $1.70 billion a year earlier.

Boeing recorded a $318-million pre-tax charge related to Air Force One presidential aircraft.

Boeing sued supplier GDC earlier this month for failing to complete interior work on the two heavily modified 747-8 Air Force One planes. GDC countersued, seeking at least $20 million for cancelling the contracts. GDC Technics filed for bankruptcy on Monday.

In July 2018, Boeing received a $3.9-billion contract to build two 747-8 aircraft for use as Air Force One, due to be delivered by December 2024.

In the quarter, Boeing completed a hot-fire engine test on NASA's forthcoming SLS rocket and started production on the U.S. Air Force's new trainer jet.

 

(Reporting by Eric M. Johnson in Seattle and Ankit Ajmera in Bengaluru; additional reporting by Mike Stone in Washington; Editing by Anil D'Silva and Nick Zieminski)



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