By Ankit Ajmera and Eric M. Johnson
(Reuters) – Boeing Co <BA.N> cut production of its flagship Dreamliner and delayed the arrival of a successor to its 777 mini-jumbo on Wednesday, piling new pressures on a rejigged senior management team as the continued safety grounding of its 737 MAX sliced third quarter profits.
The world’s largest planemaker said it was also delaying plans to step up production on its money-spinning 737 line in the Seattle-area, and would not hit a record-level 57 aircraft monthly until late 2020, months later than previously planned.
Despite the trio of industrial setbacks, Boeing shares were up about 2% in premarket trading as its steady estimate of a 737 MAX return in the fourth quarter appeared to be eclipsing the downside of the 787 production cut, an analyst said.
“The 787 cut appears to be mostly tied to China trade negotiations, which at least have the potential to improve over the next 12-months,” said Seaport Global analyst Josh Sullivan.
The profit slump and fresh setbacks capped a tumultuous week for the world’s largest planemaker, already in the eighth month of a deepening crisis over the grounding of its best-selling single-aisle following deadly crashes.
On Tuesday, the company ousted the top executive of its crucial airplanes division, Kevin McAllister, in an unexpected management shakeup related to the MAX crisis that senior industry sources say puts Chief Executive Dennis Muilenburg squarely in the firing line in the event of further revelations or if the company fails to recover from the MAX crisis.
Muilenburg’s title of board chairman was stripped earlier this month.
“Our top priority remains the safe return to service of the 737 MAX, and we’re making steady progress,” Muilenburg said in a statement accompanying the results. Boeing has begun taking steps to increase safety oversight in its industrial operations and at the board level, he added.
Its timeline of a fourth quarter MAX return compares to a January target from European regulators, while major U.S. carriers United, Southwest, and American were all scheduling without the MAX until next year.
Boeing also said there was “no significant change” to estimated potential concessions and other considerations to airline customers related to the 737 MAX grounding, part of the $8 billion price tag Boeing estimated for the MAX earlier this year.
On Wednesday, the U.S. manufacturer reported a 53% drop in quarterly profit and had a negative free cash flow of $2.89 billion in the quarter, compared with a positive free cash flow of $4.10 billion a year earlier.
Core operating earnings fell to $895 million or $1.45 per share, from $1.89 billion or $3.58 per share, a year earlier.
Investors on a conference call later on Wednesday will be eager for details on Boeing’s new leadership and efforts to repair its image with the flying public and airline customers. Analysts will also seek clarity on a potential new mid-market airplane whose development has been eclipsed by the MAX crisis, and the industrial setbacks that broaden pressure on the company’s new commercial leadership.
Boeing named veteran executive Stan Deal, who had been running its two-year-old Global Services Division, to the top job at commercial airplanes. Deal’s challenge to get the MAX back into service globally while simultaneously handling new aircraft deliveries and boosting 737 production is seen as one of the most formidable logistical challenges in the industry’s history.
After the 737 MAX safety ban in March, Boeing cut 737 monthly production from 52 aircraft to 42 and halted deliveries, cutting off a key source of cash and hitting margins.
It told suppliers in late July it planned to increase production from 42 to 47 single-aisle aircraft per month in October, and then increase from 47 aircraft to the pre-crash rate of 52 aircraft per month in February 2020, industry sources said. Boeing then would hit a record stride of 57 single-aisle jets per month in June 2020, the people said. The schedule – now delayed by months – was contingent on winning regulatory approval early in the fourth quarter.
Its forthcoming 777X twin-aisle, facing engine issues at General Electric <GE.N>, was progressing through pre-flight testing and remains on track for first flight in early 2020, but the company was now targeting early 2021 for the first delivery of the 777X.
Citing global trade tensions, America’s largest exporter was also reducing the 787 Dreamliner production rate to 12 airplanes per month for approximately two years beginning in late 2020.
Boeing faced additional uncertainty over future production rates for its Dreamliner earlier this month from lost business theoretically putting a hole in production after Boeing increased its build-rate to 14 aircraft per month from 12 at twin U.S. factories.
(Reporting by Ankit Ajmera in Bengaluru and Eric M. Johnson in Seattle; Additional reporting by Sanjana Shivdas in Bengaluru; Editing by Sriraj Kalluvila and Nick Zieminski)