Boeing’s halt on 737 Max output could add more stress on airlines

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SINGAPORE (Dec 16): Airlines could come under further financial pressure should Boeing Co go ahead with a production halt of the grounded 737 Max, with any prolonged delays in jet deliveries raising their operating costs.

Carriers are paying higher rates to lease planes to make up for the loss in capacity, while delays to their expansion plans are holding back revenue growth, said Shukor Yusof, founder of aviation consultant Endau Analytics in Malaysia. Asian carriers would be affected the most as they have the biggest number of 737 Maxes on order, accounting for at least 26% of the total unfilled deliveries at the end of November, according to Boeing.

On Order

“The financial cost for the airlines is huge,” Shukor said. “Growth will be stunted and profitability will also be severely eroded.”

Boeing’s best-selling aircraft has been grounded globally since March after two fatal crashes, forcing the company to halt deliveries and curb production. While the manufacturer’s board is now studying further slowdown in output, executives are convinced a suspension would be less disruptive, as regulatory clearance for the aircraft could slip beyond January, according to a person familiar, who asked not to be identified as the discussions are confidential.

Airlines from India to China have been hurt by the grounding of the Max, and the plane’s return to service has been delayed by months from Boeing’s initial estimates. Asia, with several financially strained low-cost carriers, could even see an airline going out of business because of costs related to the Max, Shukor said.

Production halt of the Max would also put more financial pressure on Boeing’s suppliers such as Spirit AeroSystems Holdings Inc and Korea Aerospace Industries Ltd. CFM International, a joint venture between General Electric Co and Safran SA, said in June that it will need to cut output by at least 5% should the grounding persist, while Safran said it could lower its earnings forecast.

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