Boeing, suppliers slip as planemaker’s crisis deepens


(Reuters) – Shares of Boeing Co and its main global suppliers fell on Tuesday after the U.S. planemaker said it would suspend production of its best-selling 737 MAX jet in January, its biggest assembly-line halt in more than two decades.

The 737 MAX has been grounded since March after two crashes in Indonesia and Ethiopia killed 346 people within five months, costing the plane manufacturer more than $9 billion so far.

Britain’s Senior Plc, which makes parts including airframes and engine build-up tubes for the MAX, was one of the first suppliers to comment on the suspension, saying it was working closely with the U.S. planemaker to assess the impact of a production shutdown on its 2020 sales.

The fallout extended to carriers, with Southwest Airlines Co extending cancellations of MAX flights by another five weeks through April 13, due to the continued uncertainty around the timing of the aircraft’s return to service.

“We do expect some step-down in production across the supply chain,” Canaccord Genuity analyst Ken Herbert said.

However, Herbert believes that Boeing will continue to absorb much of the financial impact and will keep its supply chain relatively supported.

The U.S. planemaker’s shares fell 1.3% in light premarket trading to $322. Shares of France’s Safran SA and Senior Plc were down between 9% and 3%, respectively. Boeing is biggest customer for the British engineer’s aerospace unit, making up 15 percent of the division’s sales.

Shares of Boeing’s top supplier, Spirit AeroSystems Holdings Inc, were flat at $78.88.

Analysts say Wichita-Wisconcin based Spirit is the most exposed to Boeing, drawing more than 50% of its annual sales from the MAX. The company now risks losing some revenue next year as its production rate of the jet’s fuselage and other components come into question.

“We expect Spirit Aero will see a rate reduction from its current 52 per month, but the exact level has not yet been determined, and we believe negotiations with Boeing will likely take into 2020 to finalize,” Herbert wrote in a note.

Safran, which produces engines for the MAX aircraft with General Electric, has warned if the aircraft’s grounding lasts until the end of the year, its cash conversion could dip below its targeted 50-55% range of recurring operating income.

Unlike most suppliers, it is paid mostly once the airplanes are delivered to the airline buyer.

GE has already estimated the MAX grounding to reduce its cash flow by $1.4 billion in 2019.

Shares of other suppliers such as wing flaps maker Ducommun Inc, composite materials supplier Hexcel Corp, and aircraft exterior lighting provider Astronics Corp were down between 10% and 15%.

Other smaller suppliers including Melrose Industries, whose GKN business has a contract to supply windows for the passenger cabin of the 737 MAX, and Meggitt which makes parts including fire protection system for the MAX engine and auxiliary power unit, were down about 1% in Europe.

Reporting by Yadarisa Shabong, Rachit Vats and Ankit Ajmera in Bengaluru and Sudip Kar-Gupta in Paris; writing by Josephine Mason; Editing by Saumyadeb Chakrabarty and Louise Heavens