Boeing has closed its 737 MAX shadow factory at Moses Lake, Washington. During the 20-month grounding of the 737 MAX after two fatal accidents in 2018 and 2019, the company continued to build aircraft before finally halting production, accumulating a peak of 450 aircraft in storage before they were re-certified to fly. The final aircraft, after six years, was flown from the Moses Lake facility, where approximately 250 of the inventoried aircraft were stored, maintained, and updated as needed. The Last Inventoried MAX is Out of Storage The Moses Lake facility is the last of Boeing’s shadow factory facilities to close, indicating that Boeing is well into its recovery from the quality crisis and the grounding of the MAX. Earlier this year, China resumed deliveries of aircraft that were previously destined for Chinese airlines but had been unable to be delivered due to the global pandemic and political concerns from earlier this decade, clearing the last few remaining aircraft from inventory. This is great news for Boeing, as the shadow factory can be dismantled and the experienced personnel and mechanics can return to Renton or to the forthcoming 737 MAX 10 line being built at Everett to support new aircraft operations. From a financial perspective, those aircraft in inventory have shifted from being a cash drain to a source of revenue upon delivery, as the final payment before delivery is typically quite large compared to the progress payments. The result is that Boeing’s last 737 MAX aircraft in inventory are expected to be delivered before the end of the third quarter, leaving only newly produced aircraft to fill the gap, which will improve cash flow timing. Scenario Planning With the FAA and Boeing discussing scenario planning before production rate increases, it is likely that with continued strong performance of key performance indicators, Boeing will receive authorization to increase its production rate to 42 per month later this year, up from the current 38. We would also expect rate increases in increments of 5 aircraft every six months, from 47 to 52, 57, and 62 per month, between 2026 and 2028. With a new line emerging at Everett, a key question is whether the FAA will lift the current production limits by 25% to reflect a fourth line for MAX production, three at Renton, and one at Everett. That topic is likely to be one element of the scenario planning process. A rate increase would enable Boeing to more quickly fulfill what will soon be a growing backlog, with a rumored 500 aircraft order from China forthcoming. The Bottom Line Boeing is making progress against many of its goals, including reducing the number of inventory aircraft and improving its production quality. Ryanair is typically a critic of Boeing, but with deliveries now becoming on time and of strong quality, even its oft-criticized CEO, Michael O’Leary, praises the company. Clearly, Boeing is on an upward trajectory under Kelly Ortberg’s leadership and is stabilizing their operations. In the interim, Airbus is struggling with its supply chain and is facing delays with multiple programs. Our projections, based on production through the first eight months, indicate that Airbus is unlikely to meet its full-year guidance, and Boeing is on pace to exceed its delivery guidance. Industry experts are now questioning whether Airbus has missed a one-time opportunity to gain a sustainable advantage over its competitors, and why the company has failed to address its supply chain issues to prevent production disruptions. The duopoly is solidly back under Ortberg's rapid recovery and leadership.
