Nation & World

Boeing's 737 production cut echoes across industry

UTC could see a $250 million sales loss over six months

FILE PHOTO: Two Boeing 737 MAX 8 aircraft are parked at a Boeing production facility in Renton, Washington, U.S., March 11, 2019. REUTERS/David Ryder
FILE PHOTO: Two Boeing 737 MAX 8 aircraft are parked at a Boeing production facility in Renton, Washington, U.S., March 11, 2019. REUTERS/David Ryder

Boeing’s plan to cut its 737 jetliner production by 19 percent this year is expected to have negative spillover effects across the aerospace industry, from parts suppliers to engine makers and even airlines.

The plane maker on Friday said it would cut output to 42 airplanes a month by mid-April, as the company fights global criticism about the safety of its 737 MAX jets after two tragic crashes that ultimately led to a grounding of the aircraft.

SunTrust Robinson Humphrey analyst Michael Ciarmoli wrote in a note to clients that suppliers cannot dial down production overnight, and changes to aircraft production rates usually take 12 to 18 months to flow through the supply chain.

Here’s how Boeing suppliers and airlines may be affected:

l United Technologies Corp. — The company’s aerospace unit has a large exposure to the MAX program, and according to Wolfe Research, Boeing accounted for 31 percent of sales for Collins Aerospace — Cedar Rapids’ largest employer — last year, spread across commercial and military segments.

“We would estimate the MAX program at over $4 million per ship-set for United Technologies,” Wolfe analyst Nigel Coe wrote in a note. “If the production drop lasts three to six months, then this implies a relatively minor $150 million to $250 million sales impact.”

l Spirit AeroSystems — Spirit, which is one of the top Boeing suppliers, on Friday said it would maintain its 737 deliveries to Boeing at the current rate of 52 ship-sets per month.

l General Electric/Safran Group — The companies make the engines used in Boeing jets, via their CFM International JV. While CFM, as with Spirit, has said it would not decrease the production rate for the Leap-1B engine, Jefferies analyst Sandy Morris said that decision could be revisited if 737 Max aircraft aren’t flying again globally by the end of September.

ARTICLE CONTINUES BELOW ADVERTISEMENT

SunTrust’s Ciarmoli said suppliers’ financials likely will be hurt by higher working capital, reduced free cash flow, lower revenue and potential overhead absorption issues that may hit margins.

The analyst estimated 50 fewer 737’s now will be produced in 2019, down to 604 aircraft from his previous estimate of 654. He sees Spirit, Astronics Corp. and Triumph Group as companies with the most downside potential.

Southwest Airlines, meanwhile, has one of the largest exposures to 737 MAX jets, and according to Raymond James analyst Savanthi Syth, service resumption may now take until the peak summer travel period. Previously it was expected around May.

The carrier has pulled 737 MAX jets from flight schedules through June 7 and said there has been no revised 737 MAX delivery schedule from Boeing yet.

Give us feedback

We value your trust and work hard to provide fair, accurate coverage. If you have found an error or omission in our reporting, tell us here.

Or if you have a story idea we should look into? Tell us here.

Give us feedback

We value your trust and work hard to provide fair, accurate coverage. If you have found an error or omission in our reporting, tell us here.

Or if you have a story idea we should look into? Tell us here.