Boeing's 737 production cut hits its shares and those of suppliers

Clay Curtis
April 10, 2019

Boeing has been in crisis mode in the weeks since an Ethiopian Airlines 737 MAX 8 crashed a few minutes after takeoff, killing all 157 on board.

Boeing said last week that it will cut production of its troubled 737 Max airliner this month, underscoring the growing financial risk it faces the longer that its best-selling plane remains grounded after the two crashes.

American Airlines is extending flight cancellations into early June as Boeing's 737 Max aircraft remain grounded.

The airline had originally canceled Boeing 737 MAX 8 flights through to April 24th.

A total of 346 were killed in the October 29 crash of Lion Air Flight 610 and the March 10 crash of Ethiopian Airlines Flight 302, both of which involved Boeing's new 737 Max 8 jet. The pilots were unable to regain control, suggesting the procedure wasn't as simple as Boeing made it seem and undercutting its previous attempts to deflect blame away from itself as it insisted the plane was airworthy.

Such a delay means an inventory buildup that won't start recovering until 2020, and may also "lower margins due to penalties owed to customers, weaker negotiating position with airlines as airlines consider cancellations, and operational inefficiencies from the production disruption", he cautioned.

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Legal complaints are mounting, with consumer advocate Ralph Nader urging a recall of the Max on behalf of his grand-niece who died in the Ethiopian Airlines crash.

Some of Britain's biggest engineering companies lost hundreds of millions in market value this morning after Boeing announced it will cut production of its 737 Max range by almost 20 per cent.

In November, US law firm Colson Hicks Eidson filed a lawsuit against Boeing on behalf of the father of one of the victims of the Lion Air crash. Investigators think a similar sequence of events involving MCAS may have led to the Lion Air crash. "We know it's been frustrating for our customers, but we have taken several steps to try to minimize the inconvenience and frustration".

Canacccord Genuity cut its price target on Boeing shares to $380 from $391.93 and said it now saw July 2019 as the date the MAX grounding could be lifted "in a best-case scenario".

He said the Boeing CEO's statement shows the airline is now acknowledging responsibility.

Starting in mid-April, Boeing said, it will cut production of the plane to 42 from 52 planes per month so it can focus on fixing the flight-control software that has been implicated in the two crashes.

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