Aerospace & Defense

Boeing doesn't expect regulators to sign off on 737 Max until mid-2020

Key Points
  • Boeing doesn't expect regulators to sign off on the 737 Max until June or July.
  • That time frame is months later than the manufacturer previously expected.
  • The delays pose another headache for carriers who have already missed one peak travel season without the planes.
Boeing doesn't expect 737 Max to be approved until June or July, sources tell CNBC

Boeing is telling airlines and suppliers that it doesn't expect regulators to sign off on the 737 Max until the middle of 2020, months later than the manufacturer previously expected.

The extended delay poses another headache for carriers who have already missed one peak travel season without the fuel-efficient planes. The company has been telling customers that it expects regulatory approval in June or July, according to people familiar with the matter.

Regulators grounded the planes in March after two fatal 737 Max crashes — one in Indonesia in October 2018 and another in Ethiopia in March of last year — killed 346 people. A flight-control system aboard the planes was implicated in both crashes.

Shares of the aircraft manufacturer fell after CNBC first reported the news just before 2 p.m. ET on Tuesday, dropping by more than 5% at midafternoon before trading was halted for Boeing's announcement. The stock closed down 3.3% at $313.37.

The Federal Aviation Administration said in a statement that it hasn't said when it will clear the plane for flight. "The agency is following a thorough, deliberate process to verify that all proposed modifications to the Boeing 737 MAX meet the highest certification standards," the FAA said. "We continue to work with other safety regulators to review Boeing's work as the company conducts the required safety assessments and addresses all issues that arise during testing."

Airline shares fell sharply on the Boeing news and on the report of the first known U.S. case of coronavirus, which has killed six people in China. Southwest closed down 2.7%, American declined 4.2% and United slid 4.4%. All U.S. airlines that have the Max in their fleets — American, Southwest and United — have pulled the planes from their schedules until early June.

Delta, which does not fly the 737 Max, fell 2.7%.

The shares of Boeing's major suppliers — General Electric and Spirit AeroSystems — also slid, falling by 1.3% and 3.8%, respectively.

Boeing's shift in its forecast is a far cry from the end-of-2019 estimate of the aircraft's return to service that former CEO Dennis Muilenburg stood by, despite pushback from regulators. Boeing fired Muilenburg last month and replaced him with longtime board member Dave Calhoun.

The change in forecast shows Calhoun, a former GE and Blackstone Group executive, is taking a more conservative view of when the planes will return to service. Several separate problems with the plane have been discovered in recent months, including a software issue Boeing disclosed last week. But the company hasn't found anything new since since then, according to a person familiar with the matter.

Boeing said it was basing the updated timeline on its previous experience with the certification process.

"It is subject to our ongoing attempts to address known schedule risks and further developments that may arise in connection with the certification process," the company said in a statement. The revised time frame, Boeing said, also accounts for the "rigorous scrutiny that regulatory authorities are rightly applying at every step of their review of the 737 Max's flight control system" as well as the additional pilot training that will be needed.

The company said returning the Max to service is its No. 1 priority. "We acknowledge and regret the continued difficulties that the grounding of the 737 MAX has presented to our customers, our regulators, our suppliers, and the flying public," Boeing said. It will provide investors with more information when it reports earnings next week, the company said.

Boeing is trying to shore up its financing to see it through the delayed approval process and rising costs stemming from the crisis. The company is in talks with banks to secure a loan of $10 billion or more in the meantime, according to people familiar with the matter. Boeing is grappling with increased expenses stemming from the two fatal crashes of the 737 Max planes.

The total amount could rise if there is additional demand from banks, one person familiar with the matter said.

Boeing shares halted after new 737 Max reports