Boeing’s Best-Selling Plane Is Also Its Biggest Headache

Boeing’s top-selling product, the 737 Max, has become a financial drag this year as the company inspects hundreds of aircraft fuselages for potential work defects.

Many of the 737 Max fuselages built by Boeing supplier Spirit AeroSystems had “non-conforming” holes, drilled in a way that the hole was oblong and not shaped correctly. The issue was first disclosed in April and initially concerned automated work performed by robots on the assembly line earlier this year, and then in August was found to also include holes drilled by hand.

While Boeing also bleeds red ink in its defense business, thanks to cost overruns on the VC-25, the 747 that serves as the U.S. presidential aircraft, a problem-ridden 737 Max program has been the central story of Boeing’s financial troubles this year.

The airplane maker on Wednesday cut its guidance for full-year deliveries of its top-selling aircraft to 375-400, down from as many as 450 in its prior plan. The culprit is a backlog of inspection and remediation work required on 737 Max 8 airplanes, many of which are completed and in storage. Boeing delivered 70 737s in the third quarter, 18 fewer than the same period last year because of the inspections issue.

“We knew that 2023 would be a bumpy ride,” Boeing CEO Dave Calhoun told analysts Wednesday on the company’s quarterly call. “We’re focused on the long term and we’re taking the tough actions now to ensure the long-term future is strong.”

The Federal Aviation Administration has concurred with Boeing’s determination that the fuselage issue doesn’t compromise flight safety. Large Max operators, including Southwest, American and United, have not removed the aircraft from service. The largest 737 Max operator, Southwest, declined to comment on any inspections that its Max 8 fleet might need, referring questions to Boeing and Spirit.

Reduced 737 output directly harms profits given that Boeing, like rival Airbus, collect the bulk of payment for their aircraft upon delivery. Because of the defects, Boeing’s commercial airplane division lost money in the third quarter, and will do the same for the fourth, before returning to profitability in 2024, the company said.

“Thanks to the culture we’re building, we have identified non-conformances from the past that we now have the rigor to find and fix once and for all,” Calhoun wrote to employees as part of the income report, which included a $1.6 billion net loss. 

Amid the fuselage rework, Boeing is boosting 737 production to 38 per month by year’s end and to 50 in 2025 or 2026. Calhoun has vowed to close “shadow factories” Boeing and Spirit are operating for the rework and to fully resolve the fuselage holes problem next year.

“We really do have these in a box with respect to the scope of work that’s required and now it’s just executing against those,” Chief Financial Officer Brian West told analysts.

Boeing still has 250 completed Max aircraft in its inventory, with plans to deliver most of those to customers by the end of next year. However, some of those are likely to slip into 2025 due to the fuselage rework, West said.

Boeing has amassed more than 4,500 orders for its 737 Max family of aircraft, updated versions of the workhorse single-aisle jet the company rolled out in 1967. There are four 737 Max variants — the 7, 8, 9, 10 — and a high-density version of the Max 8, called the 8200, which can carry as many as 200 passengers. The FAA still hasn’t certified the smallest and largest versions of the plane, both of which have amassed major orders. 

The manufacturing defects come after the Max’s 20-month grounding following two fatal crashes, in 2018 and 2019, killing 346 passengers, and a subsequent global grounding by regulators. 

The debacle cost Spirit Aerosystems CEO Tom Gentile his job on Oct. 2, replaced by Patrick Shanahan as interim chief executive. Shanahan, the deputy defense secretary in the Trump administration, was a Boeing senior executive for more than 30 years and has experience in fixing supply chain glitches, particularly on Boeing’s 787 Dreamliner, which suffered from delivery delays and battery fires in its early days.

Beyond replacing Gentile, Spirit and Boeing agreed on Oct. 12 to higher payments for 787 work now and for Boeing to pay less for 737 work beginning in 2026. The companies also released all legal claims against each other as part of an effort to rebuild their business relationship.

During the pandemic slowdown, Spirit laid off 8,500 workers in Wichita, Kan., where it produces the 737 fuselages and sends them to Boeing via rail. Many of those people were “older, more senior, experienced workers,” Gentile said at a September investor conference, and their replacements have less experience.

Manufacturing issues such as the misshapen holes generally don’t garner much attention, Gentile said. For the Max, however, Boeing halted deliveries for about a month to assess the problem. “In this case, I would say there's greater scrutiny on quality in general post the Max grounding and post the pandemic and particularly on the Max for obvious reasons,” he said.

Calhoun on Wednesday thanked investors for their patience with the company.

UPDATE: This story was updated to include Southwest declining to comment on 737 Max 8 inspections.