Boeing suppliers expose impact of the Max crisis

Uncertainty over the return of the 737 Max means some suppliers' earnings forecasts are unclear. Photo / Getty Images

Aerospace suppliers who produce everything from engines to wings for the troubled Boeing 737 Max aircraft revealed this week how much, if any, of their earnings will be hit by the deepening Max crisis.

As Boeing chief executive Dennis Muilenburg stood up at the company's annual meeting in Chicago to defend the aircraft's design, several of the jet's biggest suppliers explained how the grounding of the 737 Max was affecting their company finances.

Spirit AeroSystems, the largest 737 Max supplier, producing 70 per cent of the plane's aerostructure, pulled its 2019 financial guidance, saying previous guidance was no longer valid because of uncertainties over when the Max would return to full production.

Boeing cut production of the plane in mid-April from 52 per month to 42, and earlier plans to expand to 57 a month by midyear have been put on hold.

Spirit is partially insulated from the full impact of the production slowdown because it has a deal with Boeing to continue producing at the old rate of 52 per month, and is paid by the group to do so.

Spirit is storing extra production at its own facilities, and paying for the storage. It is one of a handful of suppliers believed to be still producing at the old rate, while others have said they have dropped to 42 a month.

Safran, which has a joint venture with General Electric that produces engines for the Max, said it continues to catch up on earlier production delays and so has not yet been affected by the decline in output. But if it continued, it would expect a €200 million ($337.4m) hit in the next quarter.

GE's new chief executive Larry Culp also confirmed a similar figure: "We probably have something in that same range as a headwind with respect . . . to our own side of the [CFM joint venture] in the second quarter."

Woodward, another Max supplier, said this week that its production has not been affected by the Max slowdown, though it said the company has no contractual deal with Boeing that guarantees any particular rate.

"We are contracted to flex with them," chief executive Thomas Gendron told investors on an earnings call, but added that for the moment Woodward, like much of the supply chain, is using the time to catch up on previous production delays.

Like almost every Max supplier, Gendron concluded that there is "uncertainty and some risk in the second half" due to lack of clarity about when Boeing will get its jet back in the skies and importantly for suppliers, when full production will resume.

Written by: Patti Waldmeir

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