Southwest to cancel thousands of flights as Boeing suspends production of 737 Max jet

RENTON, Wash. - Southwest Airlines said Tuesday that it would extend its cancellation of flights until next April, amounting to a total of thousands of canceled flights, as Boeing suspends production of its 737 Max jet next month. 

Southwest, which was counting on the Max to update its fleet, pushed back any hope of restoring the plane to service by five weeks, to April. 

“We previously removed the MAX through March 6, 2020 to offer reliability to our operation and stability for our Customers,” Southwest said in a release. “Based on continued uncertainty around the timing of MAX return to service, the Company is proactively removing the MAX from its flight schedule through April 13, 2020.” 

The airline said the revision would “proactively remove roughly 300 weekday flights from our schedule out of our total peak-day schedule of more than 4,000 flights.” That figure is nearly double the number of flights than it has canceled since the Boeing 737 Max grounded last March, according to Reuters. 

“By proactively removing the MAX from scheduled service, we can reduce last-minute flight cancellations and unexpected disruptions to our Customers' travel plans,” Southwest said. “The limited number of Customers who have already booked their travel and will be affected by our amended schedule will be notified of their re-accommodated travel according to our flexible accommodation procedures.”

Southwest added that it is trying to minimize travel disruptions and apologized to customers for any inconvenience.

“Southwest Airlines continues to monitor information from Boeing and the Federal Aviation Administration (FAA) on the impending 737 MAX software enhancements and training requirements. We remain confident that, once certified by the FAA, the enhancements will support the safe operation of the MAX,” the airline said. “We offer our apologies to our Customers impacted by this change, and we thank them for their continued patience.”

Boeing, in acknowledging that it will take longer to get the 737 Max back in the air, made a decision that could ripple across the entire U.S. economy. The company announced Monday that it would stop building the Max starting sometime in January, with no specific date for when the Renton, Washington, plant will be restarted.

The ramifications are likely to extend beyond the factory floor and across both the aviation and manufacturing sectors. The decision could affect the country's trade balance.

“This is the country’s biggest single manufactured export product,” said Richard Aboulafia, an aircraft industry analyst at the Teal Group.

Shares of major manufacturers that supply Boeing with critical elements of the 737 Max fell Tuesday, demonstrating the wide reach of Boeing's announcement. Spirit AeroSystems was downnearly 2% while General Electric, which makes the Max engines in a joint venture, was off slightly. Shares in French supplier Safran were down 3.4% in Paris. Meanwhile, shares of Boeing's main rival Airbus were up about 1.8%.

The Max is Boeing’s most important jet, but it has been grounded since March after crashes in Indonesia and Ethiopia that killed a total of 346 people. Investigators have found that flight-control software designed to stop an aerodynamic stall was a major factor in the crashes, and Boeing is updating the software to make it less aggressive. But regulators have yet to approve the changes.

The company said it will not lay off any of the factory's 12,000 workers “at this time," and many could be diverted to plants elsewhere in the Seattle region. Some could also be assigned to work on the 400 jets that Boeing has built since the Max's grounding in March but couldn't be delivered.

The FAA told the company last week that it had unrealistic expectations for getting the plane back into service. Boeing has missed several estimates for the plane's return date.

The agency has not given a specific date for approving the Max's return, but FAA Administrator Stephen Dickson has said it will be done on the agency's timetable, not Boeing's.

The FAA’s announcement to Boeing prompted the company to freeze 737 production for the first time in two decades, Reuters reported.

The suspension of production will likely ripple through about 900 companies in the U.S. and around the world that supply parts for the Max. For instance, an aircraft parts maker that produces Max fuselages and already has dozens of them in storage is trying to figure out what to do next.

Last week, American Airlines removed the Max from its schedule until April 7, a month later than previously announced.

Wichita, Kansas-based Spirit AeroSystems, which is the largest employer in the state’s largest city, said in a statement that it was working with customers to determine what Boeing's announcement means.

“As decisions are made on how to best mitigate this additional impact, we will communicate any new information to employees and other stakeholders," Spirit spokesman Keturah Austin said in an email.

He said the company makes 70% of the fuselages for the 737 and employs around 13,500 people in Wichita.

Spirit had continued to churn out fuselages even as Boeing slowed production and has 90 of them stored on a ramp adjacent to McConnell Air Force Base as of Friday. Spirit CEO Tom Gentile said in October during the Kansas Economic Outlook Conference that it would take a long time to come back if production were reduced.

The Max program represents about half of Spirit’s revenue, Gentile said.

Even if no employees are laid off at Boeing, ceasing production will still cut into the nation's economic output because of Boeing's huge footprint in the manufacturing sector. Through October, the U.S. aerospace industry’s factory output has fallen 17% compared with the same period last year, to $106.4 billion, in part due to previous 737 Max production cuts.

The shutdown would probably hinder the economy in the coming months and could worsen the nation’s trade balance, Aboulafia said.

Boeing said it will determine later when production can resume, based largely on approval from government regulators.

“We believe this decision is least disruptive to maintaining long-term production system and supply chain health,” the company said.

Boeing will likely face some tough negotiations with suppliers about what level of payments it will provide during the production hiatus. The company will want to avoid any layoffs or shutdowns by suppliers that would keep it from quickly restarting production once its safety is approved.

“It's really in Boeing’s interest to identify who needs payments to keep workers and capabilities in place for when the ramp-up eventually happens,” Aboulafia said.

Even before the production halt, airlines were delaying the dates for when they expect the Max to fly passengers. The companies are now extending those dates. 

Jeff Windau, industrials analyst for Edward Jones, said the 400 planes that Boeing has built but cannot deliver were likely a major factor in the decision to halt production. This comes “both in consideration of storage space and how efficiently can you get them delivered once the plane is ready to return to service,” he said.

Boeing has made progress on some FAA requirements to get the Max back in service, Windau said, but he still views the production halt as a negative for the company.

“The flight control system is complex, and there are still unknowns with the timing of regulator reviews and approvals,” Windau wrote in an email. He also wrote that it may be difficult to restart an idled factory once production ramps back up.

Boeing already is having cash-flow issues. In October, the company reported that free cash flow went from $4.1 billion a year ago to a negative $2.9 billion in the third quarter, worse than analysts had expected.

The Chicago-based company also faces about 150 lawsuits from relatives of crash victims, and it has set up a $100 million fund to aid families.

The 737 Max crisis has helped Boeing's main competitor, Europe's Airbus, which saw deliveries surge 28% during the first half of the year. Boeing deliveries fell 37%.

Airbus declined to comment Tuesday, but has said in the past that Boeing's crashes have not affected its sales strategy. Its shares were steady in Paris.

The Associated Press contributed to this report. This story was reported from Los Angeles.