A Boeing 737 MAX manufacturing defect discovered last month is likely to reduce the MAX delivery rate by about a third, leading to a negative cash flow and a financial loss for the third quarter, the company’s chief financial officer said Thursday.
The defect is complicated to fix and affects three-quarters of the 220 parked MAXs in inventory, all of which must have the part repaired, CFO Brian West told a financial conference.
“We’ve got literally armies of people from Boeing and the supplier working on this issue,” West said. “It is 100% the most important thing we’re working on right now.”
In August, Boeing discovered that MAX fuselages built by Spirit AeroSystems in Wichita, Kansas, had been delivered with improperly drilled holes in the aft pressure bulkhead — the heavy metal dome capping the back end of the passenger cabin that is essential to maintaining cabin pressure.
The defect is not an immediate safety-of-flight issue, but must be repaired before planes are delivered. Some MAXs already in service will also have to be fixed during scheduled maintenance.
For the past three years, Boeing has suffered a cascade of quality defects that have repeatedly disrupted production and deliveries of its two major airplane programs, the short-haul narrowbody 737 MAX and the long-haul widebody 787 Dreamliner.
In April, Boeing found certain fittings from a supplier that attached the MAX’s vertical tail fin had been improperly manufactured. That defect cut MAX deliveries to airlines during the summer peak season, but the repairs on the jets scheduled for near-term delivery were done within a few months.
West said the aft pressure bulkhead defect is “more complicated.”
“The rework hours will likely be higher and the cycle time longer than the vertical fin [defect] we had earlier in the summer. This is different … It’s more involved,” West said. “There’s hundreds of holes that get inspected. There’s an X-ray inspection process step that’s required. And it’s a very critical part of the airplane.”
“We know how to fix it, but it’s early in the rework process,” West added. “Not ideal, but we believe we’ll work through it.”
West said Boeing expects to deliver only 70 MAXs in the third quarter, versus 111 delivered in the first quarter of the year and 100 in the second quarter.
He said MAX deliveries should pick up in the fourth quarter and hit the previously projected goal for the year of 400 to 450 jets, but at the low end of that range.
The 787 Dreamliner program has also struggled with a series of manufacturing quality defects, chiefly gaps at the joins throughout the aircraft structure that are larger than specification.
As of the end of July, Boeing still had 85 parked 787s awaiting repair and delivery.
Repair work on the fuselage joins “is progressing as expected, which gives us confidence that we will be within that 70 to 80 airplane deliveries this year,” West said.
He said Boeing is building 787s at a rate of four per month in South Carolina and will increase that to five per month by year end. Boeing hopes to hit 10 per month by late 2025 or early 2026.
West also conceded that Boeing’s defense and space division is still struggling and will lose money in the third quarter.
That business is losing money on fixed-price development programs for the Pentagon that were bid too low and have faced multiple setbacks. That’s affecting about 15% of the division’s revenue, he said.
In addition, a few long-running military programs that bring in another 25% of the defense-side revenue are also losing money due to “persistent supply-chain and labor-stability issues,” West said.
He didn’t specify which military products are affected, saying only that it’s “a few legacy programs that we know how to make that we just got to get back on track.”
“We have to start to see progress,” he added. “But it’s going to take us a little bit of time.”
Nevertheless, West stressed that Boeing’s long-term financial outlook remains unchanged.
Demand for aircraft remains very strong, and so if Boeing can find stability and ramp up jet production, cash should flow freely.
West repeatedly referenced “the 2025-2026 time frame” as when Boeing expects to be fully recovered from the pandemic slowdown and to be rid of the burden from all the undelivered MAXs and 787s that have been parked pending repair work.
Though free cash flow — cash generated minus cash spent on equipment — will be negative for the third quarter, Boeing still projects between $3 billion and $5 billion in positive free cash flow for the year and reaching $10 billion in that 2025-2026 time frame.
Sticking to those long-term projections implies a belief that Boeing will reduce the spate of new quality problems popping up unexpectedly.
“Our job — and the job of the supply chain — is to drive stability and predictability,” West said.
Boeing’s share price, which had fallen almost 2% on Wednesday from $222.57, dropped further after West’s remarks closing down $1.90 Thursday at $216.05.
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