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Boeing gets FAA message, will halt Max production in January

(AP) – The message to Boeing Co. from the Federal Aviation Administration was clear: The grounded 737 Max won’t get approval to fly again anytime soon. So the company had little choice but to idle the giant factory where the plane is made.

Boeing announced Monday that it will
suspend production of the Max starting sometime in January, with no
specific date for when the Renton, Washington, plant will be restarted.

company said it won’t lay off any of the factory’s 12,000 workers “at
this time,” and many could be diverted to plants elsewhere in the
Seattle region. Some could also be assigned to work on the 400 jets that
Boeing has built since the Max was grounded in March but couldn’t be

Boeing’s decision is a recognition that it will take
longer than the company expected to get the planes back in the air, said
Richard Aboulafia, an aircraft industry analyst at the Teal Group.

they had gotten some information quietly, behind the scenes, from the
FAA that things were looking good for January or February, they wouldn’t
have done this,” he said.

The Max is Boeing’s most important jet,
but it has been grounded since March after crashes in Indonesia and
Ethiopia that killed a total of 346 people.

The FAA told the
company last week that it had unrealistic expectations for getting the
plane back into service. Boeing has missed several estimates for the
plane’s return date.

The agency has not given a specific date for
approving the Max’s return, but FAA Administrator Stephen Dickson has
said it will be done on the agency’s timetable, not Boeing’s.

FAA said Monday it wouldn’t comment on Boeing’s business decisions, and
that it has no set time frame for when work to recertify the Max to fly
will be completed.

Even if no employees are laid off, ceasing
production still will cut into the nation’s economic output because of
Boeing’s huge footprint in the U.S. manufacturing sector. Through
October of this year, the U.S. aerospace industry’s factory output has
fallen 17% compared with the same period last year, to $106.4 billion,
in part due to previous 737 Max production cuts.

Aboulafia said
the shutdown would probably hinder the economy in the coming months and
could worsen the nation’s trade balance. “This is the country’s biggest
single manufactured export product,” he said.

In a statement,
Boeing said it will determine later when production can resume, based
largely on approval from government regulators.

“We believe this
decision is least disruptive to maintaining long-term production system
and supply chain health,” the company said.

Investigators have
found that flight control software designed to stop an aerodynamic stall
was a major factor in the crashes, and Boeing is updating the software,
making it less aggressive. But regulators have yet to approve the

The long-term grounding has put Boeing in a difficult
position, said Joe Schwieterman a DePaul University professor who is an
aviation expert. The plant shutdown will help Boeing conserve cash, but
it also will disrupt the network of about 900 companies that supply
parts for the Max and other 737 models, Schwieterman said.

shutdown will cost the company economies of scale gained by producing
large numbers of planes. But by continuing to produce the grounded jets,
Boeing was forced to store them on the ground as they depreciate
because they can’t be delivered.

“The airlines certainly aren’t
going to pay for planes until they’re ready for flight. So Boeing is
really between a rock and a hard place here,” Schwieterman said.

will likely face some tough negotiations with suppliers about what
level of payments it will provide during the production hiatus. The
company will want to avoid any layoffs or shutdowns by suppliers that
would keep it from quickly restarting production once its safety is

“It’s really in Boeing’s interest to identify who needs
payments to keep workers and capabilities in place for when the ramp up
eventually happens,” Aboulafia said.

Even before the production
halt, airlines were delaying the dates for when they expect the Max to
fly passengers. Last week American Airlines removed the Max from its
schedule until April 7, a month later than previously announced.
Southwest Airlines’ pilots union also doesn’t expect the Max to fly
until at least April.

Jeff Windau, industrials analyst for Edward
Jones, said the 400 planes that Boeing has built but can’t deliver
likely were a major factor in the decision to halt production. This
comes “both in consideration of storage space and how efficiently can
you get them delivered once the plane is ready to return to service,” he

Boeing has made progress on some FAA requirements to get
the Max back in service, Windau said, but he still views the production
halt as a negative for the company.

“The flight control system is
complex and there are still unknowns with the timing of regulator
reviews and approvals,” Windau wrote in an email. He also wrote that it
may be difficult to restart an idled factory once production ramps back

Boeing already is having cash flow issues. In October, the
company reported that free cash flow went from $4.1 billion a year ago
to a negative $2.9 billion in the third quarter, worse than analysts had

The Chicago-based company also faces about 150 lawsuits
from relatives of crash victims, and it has set up a $100 million fund
to aid families.

The 737 Max crisis also has helped Boeing’s main
competitor, Europe’s Airbus, which saw deliveries surge 28% during the
first half of the year. Boeing deliveries fell 37%.