Boeing Analyst Says 737 Max Production Halt A 'Nuclear Option'

Aircraft maker Boeing Co BA could be hours away from confirming that it will halt or cut back production of the 737 MAX aircraft.

This would be consistent with the company's recent track record of setting expectations and then missing them, according to one analyst. 

Boeing Analyst Says December Return To Service 'Unrealistic' 

Boeing executives and board members publicly insisted the grounded 737 MAX would return to the skies before the end of 2019, but this is no longer looking likely, Bank of America analyst Ron Epstein said on CNBC's "Squawk Box" Monday.

The natural question on many investors' minds is one of "what is going on" at Boeing's C-suite level and even among the board of directors in terms of "not communicating well" with investors and customers, Epstein said. 

Boeing management "had to have known" several weeks ago that a return to service in December is "unrealistic," the analyst said.

737 MAX Production Pause A 'Nuclear Option'

The bull case for Boeing's stock was based in part on the free cash flow generation stemming from the 737 MAX plane.

If media reports are accurate and Boeing pauses production for even a few weeks, it will have a "material impact" on cash flow, Epstein said. 

Investors are also likely to view a pause in production as a "nuclear option" and an indication that "something really must be wrong," he said.

Financing the working capital required to store finished airplanes is a less expensive option versus slowing down the supply chain, which is very disruptive, the analyst said. 

Watching Boeing Suppliers 

Investors may want to pay attention to developments at key Boeing suppliers, Epstein said.

For example, Spirit AeroSystems Holdings, Inc. SPR continues to manufacture 52 fuselages a month, which is consistent with Boeing's initial production run rate for the 737 MAX, Epstein said. 

Manufacturing parts for airplanes is complicated and needs to be kept as "steady as possible," the analyst said.

If a supplier like Spirit AeroSystems decides to cut its production, it will serve as a "meaningful sign" that Boeing isn't lifting its own production for a "long period of time," he said. 

Boeing shares were down 3.57% at $329.40 at the time of publication Monday. 

Related Links:

Not Over Yet: Twists And Turns Still Ahead Including Nike Earnings, Quadruple Witching

Boeing Will Compensate Southwest Air Employees For 737 MAX Groundings

Posted In: 737 Air MAXBank of America Merrill LynchCNBCRon EpsteinSquawk BoxAnalyst ColorNewsTravelAnalyst RatingsMediaGeneral

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.