The FAA has ordered airlines to stop flying certain Boeing models after two crashes. Boeing is still making the planes but they’re not going to customers and a bottleneck may be brewing.
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Boeing’s 737 Max 8 and Max 9 planes were grounded this week. The company continues to manufacture them, but the planes are not going to airlines. And Boeing remains in limbo as the company figures out its next steps. NPR’s Daniella Cheslow reports.
DANIELLA CHESLOW, BYLINE: Boeing gets nearly a third of its sales from the 737 Max. But now, those planes are grounded, and it’s threatening Boeing’s financial future. Jon Ostrower is a veteran aviation reporter and editor of the site The Air Current.
JON OSTROWER: This is Boeing’s cash cow. The enterprise cannot survive without the 737. It needs this program to be successful.
CHESLOW: The 737 Max is the fastest-selling plane in Boeing’s history. It’s a fuel-efficient, single-aisle plane that competes directly with a similar model made by Europe’s Airbus. And Boeing has more than 5,000 orders of them. Boeing will continue to make the planes at a rate of 52 a month out of a plant in Renton, Wash. But the manufacturer is pausing delivery of the planes to airlines. It will have to find a place to store these planes and deal with a financial hit. Ostrower says Boeing has some insulation. Airlines usually pay about 40 percent of the cost of the plane upfront before delivery.
OSTROWER: That goes to pay for parts, labor, all through the supply chain everything Boeing buys to put, you know, the quarter-million parts in a 737 together.
CHESLOW: That buys Boeing some breathing room, and it keeps business flowing to all the companies making its components. But it can’t go on forever.
OSTROWER: There’s a time limit on that. How long can that be sustainable without essentially that remaining 60 percent?
CHESLOW: Aerospace analyst Sheila Kahyaoglu at Jefferies investment bank says Boeing’s fix will likely include additional pilot training and a software update. She told CNBC it will cause a two-month delay at $500 million a month.
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SHEILA KAHYAOGLU: So a billion dollars in total would be pushed out to next year. It might be hard to make up.
CHESLOW: For perspective, last year Boeing’s revenue topped $100 billion. It can absorb a fair amount of losses, but there are other costs. Airlines can demand reimbursement for grounded planes. Families of victims will likely sue Boeing. Erik Bernstein, a crisis management expert, says Boeing has fumbled this moment. After two crashes in five months, he says the company should have taken the initiative to ground its own planes.
ERIK BERNSTEIN: Boeing instead said it’s not an issue, it’s not an issue. And then that’s been contradicted immediately by governments around the world who say, oh, yes it is.
CHESLOW: Boeing didn’t reply to an NPR request for comment about that. In the U.S. government, lawmakers are taking a closer look at the nation’s top exporter. The Senate Commerce Committee will hold a hearing on aviation safety. Oregon Democrat Peter DeFazio chairs the House Transportation Committee. He says he will conduct a, quote, “rigorous investigation” into how the Federal Aviation Administration decided to certify the plane to fly. Daniella Cheslow, NPR News, Washington.
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