April 24 (Reuters) - Boeing's ( BA ) lower 737 MAX

production will slow the pace of its recovery, as it faces a

"difficult" period following a harrowing mid-air blowout on one

of its jets in January, CEO Dave Calhoun told employees on

Wednesday.

Calhoun, who will step down as CEO around the end of the

year, acknowledged Boeing ( BA ) was "in a tough moment" in the near

term but reiterated that the company was deliberately slowing

the system to improve quality and safety.

"Lower deliveries can be difficult for our customers and for

our financials. But safety and quality must and will come above

all else," he added, as the planemaker comes under intensifying

pressure following the January accident on an Alaska

Airlines-operated MAX 9 aircraft.

Boeing ( BA ) is, however, seeing early signs of more "predictable,

stable and efficient cycle times in (its) 737 factory," and

expects this will continue to slowly improve, Calhoun said.

While he did not specify current production levels, Reuters

reported earlier this month that output of its cash-cow 737 MAX

had fallen sharply amid a step up in factory checks by U.S.

regulators.

Analysts have warned the slow pace of deliveries risks

delaying Boeing's ( BA ) financial and production goals. Boeing's ( BA ) CFO

said last month that the company will need more time to hit a

goal outlined in 2022 for an annual cash flow of about $10

billion by 2025 or 2026.

The goal is seen as a key milestone as Boeing ( BA ) works to

accelerate its recovery from an earlier crisis after two MAX

jets crashed in 2018 and 2019.

The company also expects a slower increase in the production

rate and deliveries of its 787 widebody jets as the U.S.

planemaker wrestles with supplier shortages "on a few key

parts," a memo showed on Monday.

Following the Jan. 5 accident on an Alaska Airlines-operated

jet, the Federal Aviation Administration has imposed a cap on

production of the MAX jets and told Boeing ( BA ) to develop a

comprehensive plan to address "systemic quality-control issues."

However, demand for new planes remains strong amid

constrained production at Boeing ( BA ) and its rival Airbus, though

the European planemaker has increased its lead in the narrowbody

market in the first quarter.

Calhoun said Boeing ( BA ) would have "largely delivered" 737 and

787 in inventory by the end of the year, bringing in much-needed

cash. He added that its defense business, which has been losing

money in recent quarters, "will be progressing toward more

historical levels of performance."

(Reporting By Allison Lampert in Montreal and Abhijith

Ganapavaram in Bengaluru; Editing by Anil D'Silva)