Sometimes what seems to be bad news is good news.
Boeing stock headed lower Tuesday morning after BofA Securities pointed out the company delivered only three 737 MAX jets in a week. That pace is well below what Wall Street expects, but going slow makes sense for the company right now.
Boeing stock was off 1.5% in midday trading at $188.59 a share, while the S&P 500 and Nasdaq Composite were both up about 0.3%.
One of the factors influencing shares on Tuesday is 737 MAX deliveries. BofA Securities analyst Ron Epstein, who tracks deliveries of the planes, said he had counted just 16 MAX deliveries in March through the 21st. Only three of those were delivered in the week leading up to that date.
Boeing said in response to a request for comment that it would post March delivery results to its website on April 9. It didn’t address Epstein’s numbers.
The running March total isn’t a lot of jets. Boeing delivered 42 MAX jets in January and February. With the March volume added in, the company has sent some 60 MAX jets to customers so far this year.
Boeing can produce about 38 MAX jets a month. It also has dozens of jets it built and parked during the worldwide grounding that spanned March 2019 to November 2022. Those jets eventually will get delivered to Boeing customers too.
The inventory of parked planes plus Boeing’s level of production have Wall Street projecting 2024 MAX deliveries of 470 units, or almost 40 a month. The first-quarter performance makes that full-year number look unlikely and could mean analysts will have to cut their financial forecasts for Boeing.
The silver lining to the lower production is that it means Boeing is going slower. CFO Brian West recently told investors that Boeing isn’t accepting nonconforming parts from Spirit AeroSystems any longer.
Boeing, in other words, is prioritizing initial quality over its production schedule.
“What I want is a production system that’s under control every step of the way,” said CEO Dave Calhoun in a CNBC interview on Monday. “Whether it’s 38, or 52 or 16 [MAX jets] it doesn’t matter. It will be under control. We will not travel work to anywhere near the level that it’s been traveled and we will let this supply chain catch up to the demand…that’s the way we have to behave.”
Traveled work refers to doing a job somewhere on the assembly line other than the place where it was supposed to be finished. Eliminating traveled work is another example of prioritizing initial quality over scheduling.
Managing nonconformance from suppliers and reducing traveled work are sensible steps Boeing can take to address its recent manufacturing and quality problems. Lower deliveries are a sign the company is doing just that.
Investors might not like lower production, but they hate crises even more. Boeing stock was at about $440 a share before the second of two MAX crashes grounded the jet for more than a year in March 2019. The shares were at $249 before an emergency door plug blew out of a 737 MAX 9 jet operated by Alaska Air on Jan. 5.
The shares are below $190 now. At this point, investors should be willing to accept some short-term pain for long-term gain.
Write to Al Root at allen.root@dowjones.com