Boeing maintains 737 MAX return in December, but challenges remain

Boeing continues to focus on re-certifying the 737 MAX before the end of the year, even as obstacles to return the grounded jet to the sky remain.

The Chicago-based airframer is making "daily progress" on re-certifying the MAX, including delivering a second software update to regulators, Boeing CEO Dennis Muilenburg said during a third-quarter earnings call on Wednesday.

At the same time, Muilenburg acknowledged that the software work had slipped from September into the fourth quarter as the review process was taking "a little longer than planned." The next major milestone for the MAX will be a test flight with U.S. Federal Aviation Administration (FAA) authorities onboard.

In addition, Muilenburg acknowledged that the return of the MAX may be phased, with regulators in different countries re-certifying it at different times.

"There are tangible milestones being achieved but we still have more work to do," he said.

Boeing saw revenues fall by more than 20% to $20 billion in the third quarter, citing the impact of the on-going MAX grounding on earnings. The airframer has cut production of the aircraft to 42 per month until deliveries can resume and, facing challenges abroad, will cut 787 production rates by two aircraft to 12 per month.

Related: Boeing misses third-quarter expectations amid MAX grounding

Once the FAA re-certifies the MAX, Boeing expects the process of updating all of the stored aircraft -- estimated at around 700 737 MAXes worldwide -- and putting them into service to be a "multi-quarter operation" that could take up to a year, said Muilenburg.

Airlines have already built this gradual return-to-service timeline into their expectations. American Airlines and United Airlines have returned the MAX to their schedules from January, while Air Canada and Southwest Airlines have done so from February.

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Executives at the affected carriers have said they expect to gradually return the MAX to service, at least partially alleviating concerns of a significant jump in capacity during the low-demand winter season.

Analysts agree with Boeing's assessment that the MAX will be re-certified by the end of the year. Cowen analyst Cai von Rumohr wrote Friday that they expect deliveries to "resume in mid/late December," with U.S. airlines resuming flying in early 2020.

Rumohr noted that, in addition to FAA and pilot approval of the MAX fixes, the proposed re-certification must stay open for public comment for 15 days before it can be finalized by the regulator.

Boeing continues to work closely with airlines on both the MAX software updates as well as what they expect will be needed for the aircraft to return to the air, said Muilenburg. This includes having airline pilots independent from Boeing come in to test both the software and the any training updates as part of the re-certification process.

The final guidelines and timeline for the 737 MAX's return will be set by the FAA and global regulators, he added.

Boeing continues to be rocked by the fall out from the MAX grounding. The airframer ousted the head of its Commercial Airplanes business on Tuesday, and stripped Muilenburg of his role as chairman earlier in October.

Related: Boeing axes commercial airplanes CEO in first management change since 737 MAX grounding

At the same time, orders for new Boeing aircraft have slowed. The airframer landed orders for just 34 aircraft, including finalizing an earlier commitment from Korean Air for 20 more 787s, in the third quarter.

"The lack of orders from China has put pressure on the production rate," said Muilenburg on the cut in 787 production which will occur in late 2020.

Development of the 777X, Boeing's next big commercial project after the MAX, has also slowed. First flight is still scheduled for early in the new year but the first delivery to Lufthansa, which was due later in 2020, has slipped to 2021.

Related: Boeing Confirms Its Updated 777X Wide-Body Won't Fly Until Next Year