BA Boeing Co

By Andrew Tangel and Ben Kesling 

Boeing Co. suffered dual setbacks Thursday when it paused deliveries of its 737 MAX jetliner and a U.S. Air Force official raised concerns about one of the company's biggest military-plane programs.

The aircraft manufacturer said it has suspended deliveries of its 737 MAX following the grounding of the aircraft by aviation regulators around the world after two fatal crashes within five months.

A spokesman for Boeing said it hadn't made any changes to its 737 production rate of 52 planes a month, but said the company continues "to work through production decisions."

Boeing, the world's top plane maker in terms of deliveries, will continue to build 737 MAX planes while assessing how capacity constraints could affect the company's production system amid the world-wide restrictions, according to the spokesman.

Shares in the company fell 1% Thursday to $373.30. The stock is off 12% from $422.54 on Friday, before the fatal crash of an Ethiopian Airlines 737 MAX on Sunday. The incident in Ethiopia followed another fatal crash involving the same model plane, operated by Lion Air, in Indonesia in October.

Meanwhile, the black boxes from Ethiopian Airlines Flight 302 arrived in France early Thursday for analysis, a key step in a probe that could help determine how long the 737 MAX jet remains grounded around the world. The devices store key data, such as flight parameters and cockpit voice recordings, which investigators will unlock and read to help them determine the cause of the crash. The French agency has extensive experience investigating crashes.

Downloading the data is due to start Friday. Drawing early conclusions can take only a few hours, though detailed analysis typically can take months.

Data from the black boxes will be among the earliest and most important findings that regulators and airlines will consider in determining whether and when the jet should be allowed to fly again. President Trump said Thursday, "I hope it's going to be for a short period of time."

The new MAX model includes a stall-prevention system that has come under scrutiny since the Lion Air crash. Authorities have said preliminary data in the probe of the Ethiopian Airlines crash suggested potential similarities between the two accidents.

Boeing has said it believes the jet is safe, but added that it eventually recommended U.S. authorities ground the jet out of an "abundance of caution," according to a written statement from Chief Executive Dennis Muilenburg. The U.S. Federal Aviation Administration on Wednesday joined other regulators in grounding the 737 MAX.

Regarding the deliveries pause, a person familiar with the matter said constraints Boeing faces include places to park the aircraft once the jets are built at the company's factory in Renton, Wash.

The facility abuts a small airport, but parking is scarce so the planes must be flown to nearby King County International Airport, also known as Boeing Field, before delivery to customers.

It wasn't immediately clear how many 737 MAX planes Boeing could store at the airfield. A spokesman for the airport's operator couldn't be reached on Thursday, but has previously said Boeing leases 106 acres there, mostly for its 737 program.

Despite the FAA's grounding order, the agency has indicated it would grant Boeing special permits to move the aircraft without passengers onboard.

Boeing is investigating alternatives should space at Boeing Field fill up, the person familiar with the matter said. It isn't clear when restrictions could be lifted, but analysts said they could remain in place for at least a matter of weeks.

The world-wide restrictions also dent Boeing's ability to generate cash. Customers pay a large chunk of their bill when they receive finished aircraft.

"It represents a clear logistical challenge," said Michel Merluzeau, director of aerospace- and defense-market analysis at AIR, a research firm in Seattle. "They have to continue to pump these planes out of the factory."

The delivery pause doesn't affect delivery of Boeing's older 737NG models. Boeing's Renton factory churns out 52 737s a month, and the company has planned to increase the rate to 57 this year. Boeing has been phasing out the 737NG as it shifts increasingly toward producing the MAX models.

Also Thursday, a senior Pentagon official indicated the U.S. Air Force has lost confidence in Boeing's ability to maintain quality control over a new aerial refueling tanker it is building.

Boeing delivered the first of the KC-46A Pegasus tankers in January, more than a year late, after a series of production and design problems left the aerospace company nursing $3.5 billion in losses on the initial $4.9 billion contract.

The Air Force then suspended deliveries in February after finding tools and other debris left in some jets, prompting a sharp rebuke from defense chiefs.

"Well, we are not happy with this at all," Will Roper, the Air Force's assistant secretary for Acquisition, Technology and Logistics, told reporters after a congressional hearing. "We do not want to be accepting tankers this way. Having teams sweep an aircraft five times is simply unacceptable."

Deliveries of the tankers resumed this week, after Boeing instituted fresh measures to check the aircraft, and the company now has handed over seven planes out of the existing 52-jet contract.

Mr. Roper said he is confident in the tanker's design and said he even flew in the model delivered this week.

A Boeing spokesman said the company was focused on safety and quality and had agreed on a plan with the Air Force to remedy the debris and quality issues. Mr. Roper said this week's efforts to search for the cause of the Boeing 737 MAX crashes had no impact on military contracts.

"The government is a fair broker," he said. "We're dealing with this issue as it is."

--Doug Cameron contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Ben Kesling at benjamin.kesling@wsj.com

(END) Dow Jones Newswires

March 14, 2019 19:41 ET (23:41 GMT)

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