• Market Crumbs

279 Days Since Grounding, Boeing Halts 737 MAX Production

Image via Andres Dallimonti on Unsplash

Boeing's 737 series was first introduced on February 10, 1968, becoming the world's leading commercial jetliner over the ensuing decades. Through November of this year, the 737 series has logged 10,565 deliveries on 15,156 orders. 4,545 of the 4,591 unfilled orders, or 99% of them, are the 737 MAX.

When the 737 MAX was first announced on August 30, 2011, Boeing said "The 737 MAX offers airlines the right solution and the best choice for creating the most successful future with improved profitability. We call it the 737 MAX because it optimizes everything we and our customers have learned about designing, building, maintaining and operating the world's best single-aisle airplane"

All it took was a period of five months from late October of last year to March of this year to unravel decades of success for Boeing. On October 29, 2018, Lion Air Flight 610—a Boeing 737 MAX 8, crashed in Indonesia 13 minutes after takeoff, killing all 189 passengers and crew on board. Less than five months later, on March 10, Ethiopian Airlines Flight 302—also a Boeing 737 MAX 8, crashed six minutes after takeoff, killing all 157 passengers and crew on board.

Following the second crash, aviation authorities around the world immediately began grounding the 737 MAX. Over three consecutive days beginning on March 11, the Civil Aviation Administration of China, the European Union Aviation Safety Agency (EASA) and finally, the U.S. Federal Aviation Administration, grounded the 737 MAX. By March 18 the 737 MAX was grounded worldwide.

279 days after the FAA grounded the airplane, Boeing has finally announced it will indefinitely halt 737 MAX production in January. Saying "the FAA and global regulatory authorities determine the timeline for certification and return to service," Boeing has determined it will "prioritize the delivery of stored aircraft and temporarily suspend production on the 737 program beginning next month."

Boeing's decision is "least disruptive to maintaining long-term production system and supply chain health." The factors Boeing cited in its decision to halt production include the extension of certification into 2020, uncertainty about the timing and conditions of return to service, global training approvals and prioritizing the delivery of stored aircraft.

Boeing said the 12,000 employees who are working at the Renton, Washington Factory will retain their jobs by doing other 737-related work or be deployed to other facilities in the region. "During this time, it is our plan that affected employees will continue 737-related work, or be temporarily assigned to other teams in Puget Sound," said Boeing.

This is just the latest bad news to plague Boeing. While shares of Boeing are down 27% from their all-time high reached just before the Ethiopian Airlines crash, the stock is only down 3% since the Lion Air crash. Thanks to retiring a net 200 million shares through buybacks since 2013, shares of Boeing are still up more than 300% since the end of 2012. As Market Crumbs wrote in October, will Boeing become a case study on sacrificing quality for financial gain?

Leftover Crumbs

  • This isn't a good look. The U.S. Justice Department is preparing legal action against Live Nation for violating terms of its settlement with the government that enabled the company to merge with Ticketmaster in 2010. Under the settlement, Live Nation was prohibited from forcing venues to use Ticketmaster as an exclusive ticketing vendor. Live Nation argues it hasn't violated the settlement, however, Live Nation CEO Michael Rapino admitted that the company works with venues that are "right for our business."

  • Still unaffordable for many. Homebuilder confidence in newly built, single-family homes rose to the highest reading in December since June 1999, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The index jumped 5 points to 76. For comparison, the index hit a low of 8 at the height of the housing crisis in 2009. "Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market," said NAHB Chairman Greg Ugalde.

  • Free bus rides in Kansas City. Kansas City, Missouri will become the first U.S. city to offer free public transportation via buses. The annual cost to the city will be approximately $9 million. The goal of the program is to increase economic activity in the city, which lawmakers argue will be greater than the $9 million cost. "I believe that people have a right to move about this city," Eric Bunch, a district councilman who co-sponsored the measure said. "I don’t want to do it for any sort of national recognition; I want to do it because it’s the right thing to do."

  • Pets are big business. According to the American Pet Products Association, two-thirds of Americans own pets and have spent an estimated $75 billion on them so far this year. Pet food and veterinary care top the list of most expensive pet costs, while toys, grooming, insurance and medicine are some of the other expenses pet owners open their wallets for. The ASPCA estimates the average pet owner spends between $1,100 and $2,000 during the first year of owning a new pet. The average insurance plan ranges from $25 to $70 per month for dogs and $10 to $40 per month for cats.

  • Hopefully they'll be OK. For the first time in six years, Bill Gates or Jeff Bezos did not sit atop the list of the world's wealthiest individuals. LVMH chairman and CEO Bernard Arnault grabbed the top spot with a net worth of $109.6 billion. Arnault has seen his net worth increase by nearly $35 billion this year as shares of LVMH, which recently agreed to acquire Tiffany & Co., have risen nearly 60% on the year. However, in a sign of how volatile paper wealth can be, Bezos quickly reclaimed the title of the world's wealthiest person while Arnault and Gates rounded out the top three.