Boeing 737MAX suspends production affects suppliers

Shares of Boeing and its global suppliers fell further on December 19, according to Reuters. Boeing announced on the 16th that it would suspend production of the 737 MAX aircraft from January 2020. It was the first time in more than 20 years that Boeing had suspended production. The 737MAX, the best-selling single-aisle airliner in Boeing’s history, produced 47 aircraft per month earlier this year, and in April, boeing cut production to 42 aircraft a month, a 20 percent cut, but did not halt production.

Boeing said it had been continuing production of the 737 MAX during the suspension period, with about 400 737 MAX currently under production and not yet delivered to users.

Boeing 737MAX suspends production affects suppliers

Analysts estimate that while the 737MAX has been grounded, it still costs Boeing $1 billion a month. Boeing has lost more than $9 billion since the global suspension in March.

In addition, investors worry that the chain effect of the 737MAX shutdown could ripple through Boeing’s entire supply chain.

“Each supplier is likely to reduce delivery of about 200 aircraft parts compared to the original plan, with about 80 percent of the shortfall due in 2020,” Said Copeland, an analyst at Melius Research, wrote in a note. The rest will appear in 2021. “

Britain’s Senior (SNR.L), which makes parts such as body parts and engine assembly tubes for the 737MAX, said it was in close communication with Boeing after it announced it was suspending production to assess the impact of the shutdown.

Spirit Aerosystems is Boeing’s largest supplier of aircraft and is responsible for the production of the 737MAX fuselage. Analysts estimate that more than 50 percent of the company’s sales come from the production of 737MAX parts, and that the monthly cost of shutting down would be $0.40 per share if it chose to stop production and staff stoppages.

Spirit said it was working with Boeing to determine the financial impact of the shutdown. The company’s shares closed down 1.11 per cent on December 18.

General Electric, Boeing’s engine supplier, estimates that max’s suspension will reduce its cash flow by $1.4 billion in 2019. GE shares were down 1.26 per cent at the close of trading on December 18.

Wesley Turnbow, chief executive of EME, a metal finishing company, says Boeing accounts for half of its business, with 737MAX parts accounting for about 5 per cent or 10 per cent. He said the company had not thought of firing employees, but the MAX suspension “could really affect the company’s future.”

Hexcel, which makes the 737MAX fuselage composites, has seen sales fall after Boeing slowed down MAX production. But the company said it was confident of the long-term development of the aircraft and looked forward to “returning to the skies by 2020 and gradually increasing production.”

In addition, the airline has again delayed the 737 MAX re-flight time. On December 13, American Airlines announced that it would postpone the re-flight of the 737MAX on its fleet until April 7, 2020, and Southwest Airlines has previously announced that it will extend the flight time of the 737MAX aircraft on its fleet to April 13, 2020. This means that the 737MAX commercial suspension will take more than a year.

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