August 27, 2019 11:35 pm
Updated: August 28, 2019 7:23 am

Boeing’s 737 MAX fallout won’t slow pursuit of $50B worth of services business

Aug. 22: Shares of Boeing jumped on Thursday after Reuters reported that the planemaker plans to ramp-up production of its grounded 737 MAX jet to record levels by June 2020, as it anticipates regulatory approval.

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Boeing Co.‘s chief executive said on Tuesday that the financial fallout from the grounding of its 737 MAX jetliner would not slow the world’s largest planemaker’s appetite for deals in the higher-margin aircraft services sector.

“Our ability to do those continues to be strong,” Boeing CEO Dennis Muilenburg told Reuters at the company’s widebody manufacturing plant north of Seattle, referring to acquisitions it has made to enlarge its two-year-old Global Services division.

WATCH: July 30 — Air Canada to keep Boeing 737 MAX planes grounded until at least January, WestJet until November


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“We have the financial capacity to manage the MAX situation and continue to make our investments for the future,” he said.

Boeing‘s fastest-selling, single-aisle jet was grounded in March after two deadly crashes. The company is working on a fix for software at the centre of both crashes and is aiming to get the jet back in the air as soon as October. It has completed around 560 flights with the new software, Muilenburg said on Tuesday.

“We still anticipate getting the return-to-service early in the fourth quarter,” Muilenburg said. “We are making progress on that schedule.”

READ MORE: FAA to invite pilots from across the globe for Boeing 737 MAX simulator tests

Meanwhile, Muilenburg aims to expand the services business that includes aircraft parts, maintenance and analytics to $50 billion in revenue in a decade from its 2018 revenue of about $17 billion.

Boeing bought parts distributor KLX Inc. last year for $4.25 billion, including debt, in its largest deal since merging with McDonnell Douglas in 1997. Boeing and rival Airbus SE are pushing into the market for repairs, maintenance and analytics as airlines consider outsourcing more of such services in an effort to keep a lid on costs.

Ramp-up ahead

Boeing has had to divert resources to the 737 MAX from across the company as it works to win approval from aviation regulators for its software upgrade.

In April, Boeing dropped production to the current rate of 42 aircraft per month after halting deliveries of the MAX to airlines, cutting off a key source of cash and hitting margins. The total cost of the 737 MAX crisis has grown to more than $8 billion and counting.

Reuters reported last week that Boeing told suppliers it will ramp back up to pre-crash production rates of 52 aircraft per month in February and reach a record 57 aircraft per month in June. Investors took that as a sign of optimism that the MAX will fly again commercially as early as October.

WATCH: July 15 — How grounding of Boeing MAX aircraft impacted passenger’s bill of rights

“We are also working with our supply chain on future rates,” Muilenburg said on Tuesday. “This is all consistent with that October return-to-service date.”

However, Muilenburg reiterated the timeline for rate increases and the return to service is in the hands of regulators, who will decide when the MAX can fly again commercially.

Although the MAX issue has diverted engineering resources and attention from other aircraft programs, Muilenburg said development work on a potential new middle-of-the-market aircraft, or NMA, “hasn’t been halted.”

READ MORE: A look at what Canadian airlines are doing with their Boeing 737 MAX fleets

“We have major risk reduction activities underway that are helping us protect the entry-into-service target date that we talked about,” he said, referring to an entry-into-service date of 2025. “We are still on that same macro path. We will make that decision when we are ready.”

Boeing‘s plane must enter the market in 2025, when airlines will be retiring Boeing 757s and 767s, with Airbus poised to scoop up new plane orders.

Muilenburg also said on Tuesday that an aircraft order from China could result from any deal to end a yearlong trade war between the U.S and China, the world’s two largest economies.

© 2019 Thomson Reuters

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