Shutdown likely at Boeing Renton as 737 MAX crisis extends

[For the latest story, see: Boeing will halt Renton assembly lines, but no layoffs for employees]

The Boeing board is weighing a proposal from top management to temporarily shut down 737 production in Renton, with an announcement likely either after the financial markets close Monday or early Tuesday, according to a person close to the decision makers, who are meeting Sunday and Monday in Chicago.

It’s likely Boeing will stop 737 MAX production this week or next and keep the assembly lines closed until the Federal Aviation Administration (FAA) clears the jet to return to commercial service, which is currently expected around mid-February or early March, the person said.

“It depends on the return to service. How long is that going to take? Is it 60 days? Probably,” the person said. “You can only build them for so long without delivering.”

Ahead of the Christmas break, the imminent shutdown is tough news for Boeing’s Renton workforce, though not unexpected nine months into the grounding of the MAX and shortly after government officials telegraphed that it’s likely to extend to almost a year.

The person close to the discussions said Boeing intends to do what it can to have “as little impact on employees as possible.” He said the company will transfer some of the roughly 12,000 people who work in Renton to other production facilities in the region, including the Auburn parts plant and the Everett widebody jet plant.

However, the other facilities don’t have the capacity to absorb all of the Renton workers, and a substantial number of furloughs are likely, though perhaps beginning only after the normal holiday break for Christmas and New Year’s, which typically runs from Christmas Eve through New Year’s Day.

Last week, FAA Administrator Steve Dickson pushed out approval for the MAX to fly passengers again into next year, and then told Boeing CEO Dennis Muilenburg in a meeting in Washington, D.C., to dial down public statements suggesting a return to service was imminent.

Privately, officials identified mid-February as the new target for FAA clearance, assuming no further slips in the schedule.

The safety agency has not yet completed its review of the software fix Boeing developed for the new flight control system that activated erroneously on the two MAX crash flights and repeatedly forced the down the nose of each of the jets.

In addition, both the FAA and foreign regulators are assessing how pilots will handle the changes to the flight control systems and what training will be required before a pilot can fly the jet with passengers aboard.

Muilenburg had said in October that a production stoppage or a further cut in the production rate could be necessary if the FAA approval process for a return to service extended into 2020.

More than 700 MAX aircraft are now grounded worldwide. Nearly 400 of those built since the grounding are parked around the Seattle area and at Moses Lake in Eastern Washington, undeliverable for now.

It’s unclear if Boeing will continue production of the 737-based Navy anti-submarine plane, the P-8, which is built on a separate assembly line in Renton and based on a model preceding the MAX. However, that is a low-production line, rolling out just one or two planes a month.

The MAX had been produced at a rate of 52 jets per month until the plane was grounded, and since then was cut back to 42 jets per month.

The impact of a MAX shutdown would  ripple out through Boeing’s 737 supply chain and would idle aerospace workers across the nation and internationally.

Among the most affected suppliers is Spirit AeroSystems of Wichita, Kansas, which assembles the MAX fuselages and sends them to Renton by train.

Once production is slowed or stopped, it’s not easy to ramp up again. For that reason, since the grounding in March, Spirit has continued to maintain the pregrounding build rate of 52 fuselages a month even though Boeing was accepting only 42 per month.

That has meant fuselages stacking up in Wichita even as completed jets stacked up in Washington state. A complete halt in Renton will likely force a halt in Wichita.

Another big supplier is CFM International, a joint venture between GE and Safran of France, which builds the jet’s new LEAP engines at facilities around the U.S.

Smaller suppliers could potentially be even more affected.

In the currently booming U.S. job market, a small supplier that has to lay off workers for as long as 60 days is likely to lose those employees as they find work elsewhere. That means hiring and training new people in order to bring production back up.

A shutdown would also amplify the financial impact of the grounding on Boeing.

While production is stopped, many fixed overhead costs continue. Because Boeing’s costs during any shutdown period will be spread over many fewer aircraft than previously projected, it’s likely the company would have to announce another big accounting write-off when it reports its quarterly earnings in January.

Through October, Boeing had already projected $2.7 billion in extra costs due to the previous 20% production cut, in addition to a $5.6 billion write-off to cover compensation to suppliers and customers.

Even though a shutdown was somewhat anticipated, the stock may take a hit on Monday.

There are also broader impacts: Boeing is the country’s largest exporter, and the inability to deliver 737 MAXs to overseas airlines has already widened the 2019 trade deficit. As the U.S. heads into a presidential election year, job losses from a production shutdown will heighten political concern and  possibly add to pressure on the FAA to speed up its review of the MAX.

The current discussions around weighing a Renton shutdown were first reported Sunday by the Wall Street Journal.

Boeing had no comment Sunday, and simply repeated a statement sent out Thursday that “we will continue to assess production decisions based on the timing and conditions of return to service.”

Editor’s note: This story has been updated to correct two figures: the number of MAX aircraft grounded worldwide and the number of those newly build and parked in Washington state.