By Valerie Insinna and Abhijith Ganapavaram
WASHINGTON (Reuters) -Boeing is set to meet targets to deliver at least 400 narrowbody 737s this year, its chief financial officer said on Thursday, despite a recently discovered production flaw that has slowed deliveries of its bestselling 737 MAX.
However, Boeing (NYSE:BA) will be on the "low end" of its 400-450 jet target and margins for its commercial airplanes business will be negative in the third quarter due to low deliveries and higher development costs, Boeing CFO Brian West said at an investors conference.
Narrowbody deliveries, which exceeded 100 737s in the first and second quarters, will reach only about 70 jets in the third quarter after a disappointing 22 737s delivered in August, West said.
The recent supplier problem, discovered late last month, involves fastener holes on the 737 aft pressure bulkhead that were improperly drilled and therefore misaligned or elongated.
About 75% of the 220 737s in Boeing's inventory will need rework, and the fix will be more time consuming than an earlier problem involving improperly attached brackets on the 737's vertical tail, West said.
"There's hundreds of holes that get inspected, there's an X-ray inspection process step that's required, and it's a very critical part of the airplane," he said.
Spirit AeroSystems (NYSE:SPR), which makes 70% of the 737's structure, used an automated drilling process that would create an oblong hole on the aft pressure bulkhead if not correctly executed, Spirit CEO Tom Gentile said later on Thursday.
Spirit has 39 bulkheads at its factory that will need rework, and 15 of those have gone through the inspection process necessary to ascertain which holes will need to be fixed.
"We expect to be done with the repairs of the units in our factory by the end of November," Gentile said. "For Boeing, it may take a little bit longer."
Gentile added that 737 fuselage deliveries to Boeing in 2023 will be at the low end of the company's current 370-390 unit target.