Boeing supplier Spirit AeroSystems to suspend production of 737 MAX parts


(Reuters) – Boeing’s top supplier Spirit Aerosystems Inc (SPR.N) said on Friday it would stop making fuselages for the grounded 737 MAX jets, the first major indication of disruption spreading to the planemaker’s suppliers facing thousands of potential layoffs.

Shares of Spirit, which gets about 50% of its annual revenue from the 737 MAX, were down nearly 3% in early trading.

“This suspension will have an adverse impact on Spirit’s business, financial condition, results of operations, and cash flows,” the company said, adding it would halt production in January.

Boeing had so far shielded major MAX suppliers from a financial hit following the two fatal crashes that led to the worldwide grounding of the jets.

The planemaker continued to purchase parts from suppliers at a production rate higher than its own, in order to keep the supply chain running and avoid major disruptions when the MAX returns to service.

Spirit has been churning out parts for the jet at a rate of up to 52 units per month, even as Boeing cut its own production to 42 per month earlier this year.

The aero parts maker said in October it will not produce 737 MAX parts at a rate higher than 52 per month through 2020, 2021 and possibly into 2022, but several analysts raised doubts about that prediction following Boeing’s announcement of a production cut.

Wichita, Kansas-based Spirit said on Friday it was evaluating “all potential actions to align its cost base with lower production levels expected in 2020”.

Earlier this week, Reuters reported that furloughs in Kansas were likely if Boeing stopped paying Spirit to build and store fuselages at current rates, as the planemaker looks to conserve cash.

Analysts and suppliers have raised concerns that a MAX production halt could last up to six months or more, leading to widespread losses across the commercial aerospace supply chain across the world.

Reporting by Ankit Ajmera in Bengaluru; Editing by Saumyadeb Chakrabarty and Shounak Dasgupta