Boeing is fighting a two-front war with the coronavirus pandemic and the 737 Max crisis. Now it's staring down a 40% production cut because of it, a new research note says

• Boeing is likely to cut its manufacturing output by 30-40% due to the coronavirus pandemic, a new research note from Canaccord Genuity says.
• The estimate is based on plans announced by Airbus to cut about 35% of its output, combined with other factors including Boeing's order backlog, and the status of the 737 Max crisis.
• Boeing is also likely to accept aid under the CARES Act, even though it has appeared hesitant to do so, the report says.
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Boeing is likely to cut its aircraft output by at least one-third through the rest of 2020 as the embattled company continues to be impacted by a confluence of crises, a new report claims.

The plane-maker is likely to reduce production of its commercial aircraft in line with similar reductions by Europe-based Airbus, which have already been announced. The European planemaker said it would cut its output by about 35% compared to 2019 levels.

Airbus is reducing the rate of production for its narrow-body A320 family from 60 to 40 per month. Its wide-body production will also see a drop, with output of the A350 family decreasing 40%: from 10 per month to six. And A330 production will decrease from three per month to two.

According to a research note from Canaccord Genuity analyst Ken Herbert, Boeing is likely to follow suit and reduce its output 30-40%.

Production rates of Boeing's 787 Dreamliner at its Washington and South Carolina facilities is expected to drop from 10 to six per month, while production rates of Boeing's long-haul 777 are expected to hold at 2-3 per month, Herbert said.

The wildcard is Boeing's 737 Max, the troubled flagship narrow-body that has been grounded around the world since March 2019.

While Boeing temporarily suspended production at most of its commercial airplane facilities last month due to the coronavirus pandemic, the closure is expected to be relatively short lived, with Boeing still booking 26 net orders for wide-body jets in the first quarter of 2020 (24 orders for the 787, and two orders from FedEx for 767 freighters).

Production of the 737 Max, however, has been suspended since January. While Boeing had continued producing the plane at 42 per month since the grounding began, it has been unable to deliver them to customers, leading to a pileup of about 400 completed planes at Boeing's facilities.

The company has an order backlog of 5,049 planes, including 4,079 of the 737, but the possibility of cancellations or deferrals looms large as the pandemic continues to impact airlines and aircraft leasing companies.

Earlier on Tuesday, the International Air Travel Association, a trade group, revised its forecasted impact of the crisis to the world's airlines, raising it to $314 billion, a 25% jump from its previous estimate

In the research note, Herbert wrote that even when production resumes, it will likely stay below previous levels until at least 2022.

"The timing on the Boeing 737 Max return to service and production levels remains uncertain," he wrote. "We currently assume deliveries start again in Q3/20, with a total of 36 delivered in 2020."

"We assume that Max production will start at very low levels and should get to ~21/month in early 2021. We then assume a gradual increase through 2022-2023, with rates hitting over 40/month in 2022," he added.

Boeing has said that it expects the Max to be cleared to return to service by the FAA in "mid-2020."

Notably, Herbert wrote that he expects Boeing and other companies in its supply chain to accept federal aid through the CARES Act - despite Boeing's evident reluctance to meet the associated terms.

"We believe Boeing's final decisions are partially dependent on the aid it and its airline customers receive, as well as the timing of the Max return to service (RTS) and the overall health of its supply chain," the report said. "Moreover, the company and the supply chain are balancing the impact of the near-term shutdown of its major final assembly lines in Puget Sound and South Carolina with the evolving demand outlook from airlines and lessors."

Regardless of the exact numbers, the note warned that the impacts of the crisis are likely to be felt for years to come.

"While much of the downside will be in 2020, we expect production levels to remain well below 2018-2019 levels for several years," the report said. "We can appreciate this downturn is unlike prior cycles, and the pace of recovery will be influenced by several factors, including passenger traffic, airline financial health, aircraft retirements, airline consolidation, and supply chain strength, to name just a few."

It added: "While we hope that these estimates prove to be overly conservative, at this time they look prudent, in our view."