On Monday, Boeing (NYSE: BA) announced that it has decided to temporarily suspend the production of the 737 Max aircraft until January. Boeing shares slipped by 4.3% at the opening bell on Tuesday.
Boeing’s 737 has been grounded since March following two fatal crashes that occurred in Indonesia and Ethiopia which killed over 346 people.
The aircraft was grounded following the second crash as many regulators began to scrutinize the planemaker.
Despite Boeing’s decision to temporarily halt production of the 737, JP Morgan analyst Seth Seifman said internal overhead and labor expenses will remain and will increase cash burn, according to CNBC.
Seifman wrote in a note to clients that Boeing’s internal overhead and labor costs won’t be going anywhere. Additionally, Boeing is expected to support its suppliers until the 737 Max is cleared for commercial flight again.
“We estimate that Boeing is burning nearly USD 2 bn per month on the MAX but this will not drop to zero during the halt,”wrote Seifman. “We expect Boeing to support suppliers, which comprise ~65% of the 737 cost base, in order to preserve labor and production capabilities. For now, we assume ~50% of supply chain costs hang around, resulting in monthly cash burn that is still solidly > USD 1 bn.”
JP Morgan currently holds an “overweight” rating on Boeing shares, but has decided to slash its price target to USD 370 per share from USD 400. Despite the reduction, JP Morgan’s price target still represents a 13% upside to Monday’s closing price of USD 327 per share.
In Boeing’s press release, the Company also announced that workers involved with 737 production will not be laid off. However, workers will either continue to work on 737-related work or be temporarily relocated to other teams in Puget Sound.