Boeing’s ability to meet its ambitious production targets for the 737 MAX jet is facing significant hurdles, according to analysts from Moody’s and S&P. The aerospace giant aims to ramp up production to 38 MAX jets per month by the end of 2024, a substantial increase from 25 jets per month in July. However, analysts predict this goal may be deferred until 2025 due to potential labor disruptions and other challenges.

Jonathan Root, lead Boeing analyst at Moody’s, anticipates that Boeing will reach a monthly production rate of 32 MAX jets by the end of 2024 and achieve the 38-jet target in the latter half of 2025. “We remain in a ‘show me’ state of mind,” Root stated, reflecting the cautious sentiment towards Boeing’s production capabilities.

The push to increase production comes in the wake of a significant incident on January 5, when a mid-air panel blowout on a new 737 MAX 9 exposed long-standing quality-control issues. This event led Boeing to slow production in an effort to address these quality concerns, which has adversely affected cash flow. The company reported a cash burn of approximately $8.3 billion in the first half of 2024 and anticipates negative free cash flow for the year.

Ben Tsocanos, aerospace director at S&P Global Ratings, highlighted risks related to labor negotiations and Boeing’s track record of missing production targets. “We view increasing and stabilizing MAX production as necessary to generating free cash flow, which is ultimately what we care about to maintain the rating,” Tsocanos said.

Despite these challenges, both S&P and Moody’s rate Boeing one notch above junk status and do not foresee an imminent credit downgrade. Boeing’s finance chief has projected an increase in output in the latter half of 2024, aiming to meet the 38-plane monthly target by the end of the year. However, new CEO Kelly Ortberg has not yet publicly addressed any production adjustments.

Spirit AeroSystems, which produces the 737 fuselages for Boeing, has encountered delays in its production processes. Although Spirit shipped 27 fuselages in the June quarter, it has struggled with inspection delays, extending the vetting process beyond initial expectations.

These production delays have led to uncertainty among airlines regarding their delivery schedules. Low-cost carrier Allegiant, a Boeing customer, has revised its expectations for 737 MAX deliveries. Allegiant, which placed an order for 50 MAX planes in 2022, initially anticipated receiving 10 aircraft in 2023, 24 in 2024, and 16 in 2025. However, the airline is still waiting for its first MAX aircraft, with delivery now expected in September.

(Adapted from Business-Standard.com)