Boeing warns its production setback will hit summer air travel

Boeing’s aircraft deliveries to customers for the busy summer travel season will be disrupted because of a production flaw on the 737 Max, its chief executive has warned.

Airlines are facing a shortage of jets that has limited their ability to meet increasing demand for air travel. David Calhoun, Boeing’s CEO, told investors on Wednesday that the manufacturer’s delivery plans for the full year had not changed, but deliveries “over the next several months” would be delayed, hurting airlines’ summer flying schedules.

“The timing of these deliveries will impact summer capacities for many of our customers, and we feel terrible about that,” he said.

Boeing flagged production issues earlier this month, saying that Spirit AeroSystems, a supplier, had improperly installed two fittings on the fuselage of the 737. While the jets remained safe to fly, according to Boeing, they cannot be delivered to customers.

About three-quarters of the 225 Maxes that Boeing has in storage will need to be fixed, said Brian West, chief financial officer. The company expects to average about 30 deliveries per month in the second quarter, rising to 40 per month in the second half of the year. Ultimately, deliveries will be “dictated by the pace of fuselage recovery”, it said.

Boeing added it had extended a cash advance to Spirit, as well as manufacturing and engineering resources.

Still, the US aerospace manufacturer on Wednesday affirmed guidance it gave to investors last autumn, saying it would deliver between 400 and 450 737 Maxes this year while generating between $3bn and $5bn of free cash.

Boeing is building 31 of the narrow-body 737 Max jets each month and intends to speed up production to 38 per month by the end of the year.

Even though production will be hampered in the next few months, Boeing chose to keep suppliers on the same schedule, while building up its own inventory, West said. Suppliers suffer when the pace of production changes because, unlike large manufacturers, they lack the working capital to bridge the differences.

The company is making three 787s per month, which it said it planned to increase to five later this year.

Boeing reported $18bn in revenue in the first quarter but lost an adjusted $1.27 per share. The adjusted loss was smaller than the $2.75 per share from the same period a year ago, but was wider than the $1.07 a share loss that Wall Street expected.

Both the commercial aeroplane and the defence businesses lost money. The commercial division cited unusually high operating costs, while defence took a $245mn charge on the programme to make the KC-46 refuelling tanker, which has been beset by delays and extra costs for more than a decade.

Still, the company used less cash in the quarter than investors expected, with an outflow of $800mn compared with Wall Street expectations of more than double that figure. Many investors use free cash — operating cash minus capital expenditures — as their primary gauge of the company’s financial health.

Boeing said it continued to expect free cash flow of between $3bn and $5bn for the year.

It was a “messy” quarter, said TD Cowen analyst Cai von Rumohr, but “no big surprises”.

Boeing shares were up almost 3 per cent in lunchtime trading in New York.