Boeing has warned that it may need to further reduce its 737 MAX production rate or stop altogether if additional delays continue in relation to the aircraft returning to flight. This announcement by Boeing was in response to an inquiry from the US Securities and Exchange Commission (SEC). The SEC later released the full letter from Boeing in accordance with its disclosure programme.
A report by Eric Johnson in Reuters refers to a lengthy letter by Robert Verbeck, a senior VP and Boeing’s finance and corporate controller.
It’s no secret that the 737 MAX grounding is having a major impact on Boeing’s profits. Orders for the 737 MAX were regarded as a regular and significant income have now dried up. In addition, there has been the US$5.6 billion charge that covered potential concessions and considerations to MAX customers.
Although grounded 737 MAX aircraft have been filling up Boeing’s spare ramp space, the airliner has continued to be manufactured, although at a reduced rate. By mid-2019, Boeing’s inventory holdings had increased by US$5.9 billion. Within the letter Verbeck stated that the MAX grounding was having a: “very material financial impacts on our revenues, operating earnings and cash flows.”
Despite Boeing being optimistic about the future of the 737 MAX’s return to service, it notes the grounding will have ongoing financial impacts across future financial reports. Verbeck continued:
“We expect that in the event that we are unable to resume aircraft deliveries consistent with our assumptions, the continued absence of revenue, earnings, and cash flows associated with the 737 MAX deliveries would continue to have the most significant impact on our operating results.
“In the event that we decide to further reduce the 737-production rate or temporarily cease production, we expect that the growth in inventory and other cash flow impacts associated with production would decrease. However, while any such reduction or cessation of production could mitigate the impact of continued production on our liquidity, it could significantly increase the overall expected costs to produce aircraft included in the accounting quantity, which would reduce the 737 MAX program margins in the future.”
Until now Boeing has not publicly stated that it may stop production of the MAX, but this recent letter from Verbeck, suggests that if the aircraft does not return to wide-spread service soon, Boeing may well have to consider suspending production as an option.