Boeing’s top executives said Thursday they will begin to resell some of the 737 MAXs built for Chinese airlines, a signal of impatience with the protracted closure of the Chinese aviation market.
About 150 MAXs meant for China are in storage, some parked for more than three years, as the Chinese government continues to block deliveries of the jets.
Boeing CEO Dave Calhoun and CFO Brian West in separate appearances said they can no longer wait for China to open up and start taking the airplanes.
“We have deferred decisions on those planes for a long time. We can’t defer that decision forever,” said West, speaking at a Morgan Stanley conference in California. “So we will begin to remarket some of those airplanes that were otherwise earmarked for our Chinese customers.”
And speaking at the US Chamber of Commerce Aerospace Summit in Washington, DC, Calhoun said “I think we’ll get back (into China) someday. I just don’t think it’s a day soon.”
Speaking to reporters on the sidelines afterward, Calhoun conceded that he hasn’t seen the progress in opening up China that he hoped for.
Calhoun said Boeing will conduct the resale of the jets for China “in a very slow way because I want to protect our customers in China,” Reuters reported.
“But you can’t wait forever,” Calhoun added. “You’ve got to move them and there is a big market.”
At the California conference, West said the decision to begin to resell some of the jets built for China was not taken lightly.
“These customers are incredibly important. We’re celebrating 50 years in China. It’s an important market,” West said. “But we’ve deferred this decision long, and now we have to think about investors.”
Investors are focused on Boeing’s cash flow. To generate the expected cash, Boeing needs to deliver airplanes at a steady and quickening pace.
West said Boeing had 290 of the 737 MAX airplanes sitting in storage at the end of June, with a large portion of those earmarked for Chinese customers.
China was among the first nations to ground the MAX after the second of two deadly crashes in March 2019. The Federal Aviation Administration cleared the MAX to return to service in the US in November 2020, and US deliveries resumed the following month. Many other foreign regulators quickly followed suit.
The Chinese authorities finally cleared the MAX in December 2021, after which some Chinese airlines made the required fixes to the MAXs they already had in their fleets and began a few demonstration flights.
“In February , we actually had customers doing flight tests. Then everything stopped,” West said. “They paused because they had to deal with their COVID lockdown restrictions, et cetera.”
The “et cetera” that West didn’t spell out is the heightened political tension between China and the US
That tension only intensified recently after US House Speaker Nancy Pelosi visited Taiwan, which prompted threatening military moves by China. Relations are now at a low point and a near-term easing of the political situation looks unlikely.
In a note to investors Thursday, financial analyst Ken Herbert of RBC Capital Markets wrote: “The risks around timing of MAX deliveries into China are now largely geo-political.”
On the sidelines of the Chamber of Commerce event, according to Scott Hamilton of Leeham.net, Calhoun said, “The geopolitical situation is rough. It is tough.”
Both Calhoun and West said Boeing has customers eager to take the stored planes in place of China.
“The good news is we’ve got confidence and conviction that we can remarket” the MAXs, West said.
West indicated that Boeing is ready to work with China as soon as the Chinese government gives the go-ahead to the Chinese airlines. The airlines would then have to update their pilot training and take the MAXs they already have out of storage.
“We’ve just got to work through it when the regulator and the customer are ready,” West said. “We stand ready.”
Labor shortages, supply chain disruptions
Apart from the China news, West laid out how Boeing is working through other challenges.
Last month, Boeing finally got approval to begin delivering its 787 Dreamliners again. West indicated the process of clearing that inventory will be slow.
He said that, as of the end of August, Boeing had 118 Dreamliners still in storage and projected that it will take through next year and into 2024 before all of those are delivered.
He said Boeing plans to bring the 787 production rate up from its current low level of one or two jets per month to five jets per month by the end of next year.
The big issue across Boeing’s production is supply chain disruption, caused mainly by labor shortages at suppliers, West said. Supply of engines for the MAX is the biggest problem on that program, he said.
Boeing itself is struggling with the loss of experienced employees, replaced by new hires who have to be trained and gain experience, West said.
“We bring a lot of new labor into the factory. They have to learn,” West said. “It takes time.”
West also acknowledged uncertainty around certification of the 737 MAX 7 and MAX 10 models.
FAA certification of the MAX 10 is not expected before a year-end legal deadline, after which Boeing would need an exemption from Congress to avoid having to upgrade the system on the jet that alerts the crew when something goes wrong during flight.
West reiterated Boeing’s position that it’s safer to keep the system on the MAX 10 model common with the other MAXs.
“We will see that unfold as we exit this year and move into next year,” West said.