Boeing suppliers bracing for temporary halt in 737 MAX output

Boeing suppliers bracing for temporary halt in 737 MAX output

Boeing Co suppliers, customers and financiers braced on Monday for a possible freeze in Boeing 737 production for the first time in more than 20 years as the grounding of the best-selling MAX looks set to last well into 2020, Trend reports citing Reuters.

Two suppliers told Reuters that Boeing was likely to halt assembly of the jet, though some suppliers could be asked to keep producing to minimize disruption.

Boeing’s board was due to meet for a second day in Chicago on Monday to assess output decisions, with an announcement expected later in the day.

A person briefed on the matter said on Sunday Boeing was considering whether to cut or halt production of its grounded 737 MAX after the Federal Aviation Administration (FAA) said last week it would not approve the plane’s return to service before 2020.

Boeing’s best-selling plane has been grounded since March after two crashes in Indonesia and Ethiopia killed 346 people, costing the plane manufacturer more than $9 billion so far.

Analysts say a suspension of MAX production would likely result in significant additional charges for Boeing as well as its main suppliers, who have been shielded from a financial hit as they have continued to sell parts for the jet at a rate of up to 52 units per month, even as the planemaker has cut its own production to 42 per month.

Disruptions to production could also result in layoffs or furloughs of some of the 12,000 workers at Boeing’s 737 factory south of Seattle.

Boeing’s shares were down nearly 4%, while Spirit AeroSystems Holdings Inc fell roughly 3.2%. Spirit is Boeing’s biggest supplier and makes the MAX fuselage along with other parts such as pylons.

Analysts highlighted Safran SA and Senior Plc as other suppliers that could experience disruption impacts.

The person briefed on the matter told Reuters a temporary shutdown was more likely than another cut.

Boeing said late on Sunday the company “will continue to assess production decisions based on the timing and conditions of return to service, which will be based on regulatory approvals and may vary by jurisdiction.”

Last week, Reuters reported that Boeing was delaying by months its overall plan to speed up production as the U.S. planemaker struggles to win regulatory approval to return the jetliner to commercial service.

Without the 737 MAX, airlines that rushed to buy the plane have had to cancel flights and delay growth plans. Some 387 aircraft were flying before the grounding. Boeing has since produced nearly double that amount but has had to park them while deliveries remain frozen.

Still, U.S. airlines shares were higher on Monday as investors bet that a prolonged 737 MAX delay would limit capacity growth, underpinning higher airfares.

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