Boeing CEO Dave Calhoun indicated Tuesday that the latest 737 Max production quality problem will delay airplane deliveries such that about 45 to 50 Maxes that airlines planned to have for their peak summer season won't arrive in time.
"This delivery delay removes approximately 9,000 seats from our customers' summer schedules, and we apologize to all of them for the impact on those fleets," Calhoun said, speaking at Boeing's annual general meeting, which was presented virtually.
Among the likely affected customers is Southwest Airlines, which took delivery of 29 Maxes in the first quarter and had been anticipating 61 more this year.
And despite public assurances Monday of "no disruption" by management of Ryanair, it seems certain some of the Irish carrier's scheduled 24 deliveries of the high-density Max-8-200 model in April, May and June will be delayed.
Pressed by investors Tuesday to say what management is doing to stem the "continued negative reports on the quality of Boeing products," Calhoun said he anticipates supply chain problems will continue to slow production over the next two years but stuck to Boeing's projection that it can ramp up production to a full recovery beyond that time frame.
He said Boeing is not changing the schedule it has given suppliers to be ready for anticipated rate increases.
"We don't expect this issue to change our long-term guidance for 2025 or 2026," Calhoun added. "I expect this year and next calendar year will be the most difficult of the years. But we are definitely making progress."
With long-term production targets unchanged, he said Boeing remains "on a good path" toward its goal of generating $10 billion in free cash flow in 2025.
A significant setback
Calhoun was addressing the latest Max production flaw that has hit investor confidence in Boeing's ability to regain control over its future.
On a series of Max jets built as far back as 2019, fittings that attach the vertical fin to the fuselage don't conform to the specification.
Boeing learned of this new problem Wednesday when Wichita, Kan.-based supplier Spirit AeroSystems notified it that one subcontractor had used "a non-standard manufacturing process" in fabricating the heavy metal fittings that attach the vertical fin to the fuselage.
This is contrary to strict Federal Aviation Administration regulations.
Calhoun said the problem "is significant and matters because it's going to impact summer deliveries to our airlines."
But he added that "at least we knew very quickly exactly which airplanes were affected, exactly what parts, and we built rework plans within a week of the time it was initially disclosed."
The fittings involved are two of eight points where the vertical fin is attached to the fuselage. All models of the Max are affected except for the Max 9.
These parts have to be manufactured to precise specifications. In a note to investors Monday, Bank of America aerospace analyst Ron Epstein called the suspect fittings "some of the most important on the aircraft."
"The vertical tail can experience meaningful loads" during flight, Epstein wrote. "These fittings are not something to be trifled with."
While this means the rework must be carefully engineered, Boeing says that with six of the eight fittings up to spec, there's enough redundancy in the structure to protect the integrity of the tail fin.
Calhoun reiterated Tuesday Boeing's assurance that "this is not a safety-of-flight concern, and the in-service fleet can continue to operate safely."
He said "we know what we have to do" to fix the problem, but did not provide any details on how many airplanes will ultimately have to be reworked nor how labor-intensive the rework will be.
"This is an airplane-by-airplane evaluation," he said.
Epstein said Tuesday about 690 Maxes produced since 2019 have been delivered to customers. And about 250 jets built after deliveries stopped following the two fatal Max crashes are still parked on the ground in long-term storage.
Epstein offered a ballpark estimate that, taking out the Max 9s that are unaffected, around two-thirds of each of those sets of Maxes may need to be reworked — potentially as many as 400 planes.
Looking for positives
Just a week ago, after announcing encouraging March jet deliveries, Calhoun must have been looking forward to speaking at the shareholder meeting of steady progress toward recovery after four bleak years of repeated missteps.
Instead, Calhoun on Tuesday was forced to fight this latest fire.
Overall, despite this setback, he tried to convey a positive message of progress compared with Boeing's dire position over the last few years.
He pointed to the more than a thousand Maxes flying worldwide now, which, since the jet's return to service in late 2020, "have safely flown nearly 4 million flight hours with exceptional reliability."
Even in China — which, amid political tension with the U.S., has not taken any new Max deliveries since the jet was grounded in spring 2019 — Calhoun said 45 of the 95 Maxes delivered before the grounding are now back in service.
He said part of the reason for the repeated quality setbacks has been Boeing's intense reevaluation of its processes and its willingness to pause production when it finds anomalies.
"Within our factories, we're not pushing the system too fast. We're slowing down when necessary and working hard to ensure work is completed in its proper sequence," Calhoun said.
And despite the "supply-constrained environment," Calhoun insisted "the majority of our production systems are performing well."
"We continue to work through supply chain challenges on a case-by-case basis," he said.
"We do expect another challenging year for the supply chain. But we've seen some improvement," he added. "Slowly and steadily, the list of issues that we've had to contend with in a strained supply chain has been declining."
Boeing has sent more people to monitor and support suppliers on-site, he said. And it has ramped up internal fabrication capabilities so that it can make parts when the supply chain falters.
"We feel like the worst is behind us and we will slowly improve as we move into the next year," Calhoun said.
Stating his vision of the longer-term future, he repeated his position that Boeing must wait some years before launching its next all-new family of jets until there is technology available to provide a substantial reduction in fuel burn and carbon emissions.
So Boeing won't rush to develop a plane to compete directly against the long-range single-aisle Airbus A321neo, which has won almost 4,700 orders.
"We don't want to simply fill a niche in the market," Calhoun said of Boeing's next jet family. "We want to provide a generational leap in performance for our customers and completely reshape the landscape."
Boeing will report its first quarter financial results on April 26, and investors will follow closely then for executives to report more detail on the expected production and financial effects of the latest Max quality flaw.
