What reaching rate 38 means for Boeing |

Reports coming out of Seattle indicate that Boeing finally reached its FAA mandated maximum output for the 737 MAX of 38 units in May, or rate 38. Reaching that rate, and maintaining high scores on six key performance indicators of quality, will determine when the FAA enables Boeing to take its next incremental step to 42 aircraft per month. Reaching that rate is the first step in Boeing’s financial recovery. The 737 MAX program needs higher volume rate 38 per month to break even and stop the bleeding of cash flow that began with the initial safety issues with the airplane and were compounded by the global pandemic and management failures at the company. Boeing, prior to Kelly Ortberg coming in as an outsider, was unable to focus on quality and manage supply chain constraints in the wake of the global pandemic. Under Ortberg’s common sense leadership, management and the rank and file have clear goals, clear expectations, and measurement of progress to rely on as the company turns around the beleaguered 737 MAX program. Is Celebration Premature? Reaching and then exceeding rate 38 is just the first of a long list of critical approvals needed at Boeing. The company must now continue to produce at rate 38 with high scores on six key performance indicators to enable the FAA to raise the maximum rate allowed to 42. Boeing then hopes to increase to rate 47 and rate 52 as performance allows in 2027. We would expect the FAA to approve a rate increase after 4-6 months of consistent high performance on the key indicators, meaning that an increase before year end is possible. Boeing currently has very high inventory levels on hand to avoid future supply chain constraints that could negatively impact production, another positive. Dual sourcing where possible and identifying and anticipating bottlenecks have helped Boeing to climb out of the deep hole it created for itself after the Alaska airlines door plug blowout incident as it failed expectations multiple times in 2024. The result of Ortberg’s strategy is a clear path to rate 42 by year end 2025 if the company executes that plan. Certification of the MAX 7 and MAX 10 Other critical FAA approvals are needed, however, to get the company fully back on track. Boeing has planned another assembly line for the 737 MAX 10 at its Everett facility, but is awaiting certification of the new variant. That certification, and the certification of the MAX 7, could be held up if a favorable decision on a request for an exemption is not granted. That exemption would enable the stall-management yaw damper system software to be used in the interim while the software is certified to a higher level of safety. If the FAA says no, then certification of the MAX 7 and MAX 10 expected this year would be pushed out another 12-18 months. The timing of an FAA decision on this issues is unknown, but the request was opposed by the AirLine Pilots Association, indicating full industry support for Boeing has yet to be achieved. Given the strong record on the 737NG and MAX for that existing software, our sources expect the exemption to be approved later this year. Once the MAX 10 is certified, the new line can be established with built-in quality measurement. With Renton able to produce at rate 38, that rate for the new line at Everett would add to that total, enabling the company to generate higher cash flow from the higher production rate as the new line ramps up. While we expect strong FAA supervision, Boeing does know how to design assemble line processes and integrate safety measurement within the system to ensure higher levels of quality. The Bottom Line Boeing is now performing better, but still nowhere close to its historic level of production of the 737NG. With a backlog stretching to 2031, Boeing needs to dramatically increase its production rates to meet the high industry demand for more fuel-efficient and environmentally friendlier aircraft. But the key decisions of certification, exemptions, and production rate approval are in the hands of the FAA, and not under Boeing’s direct control. The FAA indicated that rate approvals would be based on key performance indicator performance. That brings one element into Boeing’s control - somewhat. But the key decision on the exemption that will allow certification of the MAX 7 and MAX 10 on a timely basis is the critical FAA decision hanging over Boeing’s head today. The resolution of that matter will be key to investor confidence that Boeing can increase rates to more profitable levels in 2026 and that a financial recovery will indeed follow what now appears to be a recovery in production quality and rate. The outlook in Renton is improving, as is the outlook for Boeing.

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