At the beginning of 2019, Boeing planned to increase production of the 737 from 52 aircraft per month to 57 per month by mid-year. At the time, Boeing had a firm order backlog for 4,754 aircraft, including 4,661 orders for 737 MAX models. Demand for the older 737 “Next Generation” models has faded, and Boeing will soon deliver the remaining NG models in 2019.
Boeing’s plans for a production increase were upended by two fatal crashes of MAX 8 aircraft in early service (a Lion Air aircraft in October 2018 and an Ethiopian Airlines aircraft in March 2019). Initial conclusions from investigators pointed at problems caused by the MAX’s new automated anti-stall system (MCAS). Regulators have grounded the aircraft as Boeing develops and implements any necessary changes to the aircraft’s systems to make it safe to fly.
In April, Boeing announced a temporary cut in the 737 production rate from the then-current 52 per month to 42 per month. Aircraft rolling off the production line are placed into storage pending clearance by regulators of the MAX family’s return to flight. Our current forecast for 2019 reflects the production of these undelivered aircraft even though Boeing will not deliver most of them until 2020.
We have cut expected production of the MAX in 2019 to under 400 aircraft (Boeing’s reported deliveries for the year will be much lower even under a best-case scenario). Our near-term forecast assumes that Boeing will be stuck at the 42-per-month rate deep into the autumn of 2019, and will then return to the prior 52 aircraft rate per month by December. We think the rate will temporarily stay at 52 per month in the first half of 2020 as the manufacturer finally delivers aircraft built in 2019 along with aircraft then rolling off the line. Boeing could then return to its plan for a production ramp-up to 57 aircraft per month around the middle of the year.
Boeing is altering the way the MCAS functions during flight operations, and the forecast assumes that the problem can be solved with a relatively easy-to-implement fix. However, there is a substantial risk that Boeing faces a more protracted process of gaining the necessary regulatory approvals than it currently anticipates, or that the changes to the aircraft’s systems will be more time-consuming than we expect. We expect to periodically adjust the forecast as the projected timeline for the MAX family’s return to service firms up.