Boeing to halt 737 output in January in a move that will strain its supply chain
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“This decision is driven by a number of factors, including the extension of certification into 2020, the uncertainty about the timing and conditions of return to service and global training approvals, and the importance of ensuring that we can prioritize the delivery of stored aircraft,” the plane maker said in a statement Monday evening.
The airframe is the largest portion of a plane, but building it is one-off work, with none of the highly profitable maintenance and repair sales that suppliers of other components enjoy. And smaller aerostructures suppliers have been left financially stressed as they tooled up to prepare to raise production of the 737 MAX while Boeing stretched out payment terms to 90 to 120 days, says Kevin Michaels, a consultant with Aerodynamic Advisory.
No delivery means precious little revenue for Boeing: It typically only collects 1% to 5% of the purchase price of a plane as a down payment, with the final 50% due on delivery and the balance coming in payments as the delivery date approaches. Spirit is working with Boeing to determine what the freeze means for the company and what steps it will take to mitigate the impact, a spokesperson said.
The decision to halt production rather than slow the rate promises to make it more difficult for Boeing and its suppliers to raise output when it’s over. “Think of it as a standing start versus a running start,” says Aboulafia. A complete halt “puts enormous pressure on their supply chain and makes it hard to get back to 42 a month, let alone 52 or 57.”
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