Boeing crisis deepens as 737 production stops for first time in two decades

The first Boeing 737 MAX 7 is unveiled in Renton, Washington. (Source: REUTERS/Jason Redmond)

The decision confirmed investor fears that the company's recovery from the crisis is dragging on longer and creating more uncertainty for Boeing than executives anticipated.

Boeing's travails since March have weighed on the US economy, holding down American manufacturing output, trade and sales of durable goods while damaging the company's performance on Wall Street's benchmark Dow Jones Industrial Average.

In a statement, the company said it would continue to pay its workers despite the temporary production stoppage, but the decision immediately raised questions for the future of parts suppliers which contribute to the jets' manufacture.

"We have previously stated that we would continually evaluate our production plans should the MAX grounding continue longer than we expected," the company said in a statement.

"As a result of this ongoing evaluation, we have decided to prioritise the delivery of stored aircraft and temporarily suspend production on the 737 program beginning next month."

The company said it would focus on delivering 400 jets it has kept in storage.

Though the jets have been grounded worldwide since March following deadly crashes in Indonesia and Ethiopia, which left 346 people dead, Boeing had continued to produce 40 of the planes per month at a Renton, Washington facility.

The decision to halt production will have little immediate impact on airlines that have already seen deliveries halted, forcing many to cancel flights or lease older replacements.

But it marks a deepening of a crisis that has already seen Boeing's fastest-selling jet grounded worldwide, its safety record scrutinized, customers pressing for compensation and its cornerstone relationship with the FAA placed under strain.

SHARES TUMBLE ON WALL STREET

Last week, US aviation regulators issued the company an unusually sharp rebuke, accusing it of pursuing an "unrealistic" timeline for the MAX's return to service and of making public statements intended to put pressure on federal authorities.

The Federal Aviation Administration said on Wednesday it could not approve the jets' return to service before 2020, even though Boeing had long said it planned to get officials' green light before the end of this year.

Boeing and the FAA have been under intense scrutiny for their responses to issues with the aircraft, including the flight-handling system involved in both accidents, the Maneuvering Characteristics Augmentation System, or MCAS.

Analysts say Boeing's prospects will remain clouded until Boeing can get the all-clear for the MAX to fly again.

"It is not a surprise that they don’t continue producing planes that don’t have a home," said Adam Pilarski, senior vice president at Virginia-based consultancy AVITAS.

Major air carriers which had purchased 737 MAX jets have repeatedly pushed back the dates on which they anticipate a return to service.

Southwest said on Thursday it had reached a confidential agreement with Boeing partially compensating the airline for costs related to the grounding of the jets.

Nevertheless the company in November unveiled an updated version of the jet, the 737 MAX 10.

Shares in Boeing fall 4.3 per cent as investors anticipated Monday's decision. They were down another 0.4 per cent in after-hours trading at 2300 GMT.