The company said the production of the plane will stop in January, a move that could hit its global supply chain and the US economy.
The decision, made by Boeing’s board after a two-day meeting in Chicago, follows news last week that the Federal Aviation Administration (FAA) would not approve the plane’s return to service before 2020.
Boeing will not lay off any employees during the production freeze, the company said. This included the 12,000 employees at the company’s Seattle-area plant where 737 Max jets are built, Bloomberg News reported, citing unnamed sources.
The 737 MAX has been grounded since March after two crashes in Indonesia and Ethiopia killed 346 people within five months.
The crashes have been blamed on automated control systems and have cost the plane manufacturer in excess of $9bn.
“We have previously stated that we would continually evaluate our production plans should the MAX grounding continue longer than we expected,” the company said in a statement.
“As a result of this ongoing evaluation, we have decided to prioritise the delivery of stored aircraft and temporarily suspend production on the 737 programme beginning next month,” it added.
Airlines with 737 MAX jets and orders also face added uncertainty after already scaling back flying schedules and delaying expansion plans due to the grounding.
Southwest Airlines Co, the largest 737 MAX customer, said last week it had reached a confidential compensation agreement with Boeing for a portion of a projected $830m hit to operating income in 2019 as a result of the grounding.
Aviation analyst Kyle Bailey told Al Jazeera that he expected the FAA to give the green light to the plane’s return to the skies in about six months, but that the aircraft’s image had undoubtedly been tarnished.
“This has been all over social media in a way we’ve never seen before,” Bailey said. “Everybody knows this plane. There may be some hesitation, but the bottom line is that people have to travel and probably after six months all these issues will probably be in the rearview mirror.”
Halting production will ease a severe squeeze on cash tied up in roughly 375 undelivered planes, but only at the risk of causing industrial problems when Boeing tries to return to normal, industry sources told the Reuters news agency. Supply chains are already under strain due to record demand, and abrupt changes in factory speed can cause problems.
In 1997, Boeing announced a hit of $2.6bn, including hundreds of millions to deal with factory inefficiencies after it was forced to suspend output of its 737 and 747 lines due to supply chain problems.
Boeing said it will continue P8 production of the military version of the 737.
Boeing’s shares closed down 4 percent on Monday and fell 1 percent after hours. Shares in Spirit AeroSystems Holdings Inc, its biggest supplier, closed down 2 percent.
Spirit, which makes the MAX fuselage along with other parts such as pylons, said on Monday it would work with Boeing to understand any changes to the production rate.
Analysts highlighted Safran SA and Senior Plc as other suppliers that could experience disruption effects.