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THE BOEING COMPANY

(BA)
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Boeing Supplier Freezes 737 MAX Work

06/11/2020 | 03:28pm EDT

By Doug Cameron and Andy Pasztor

Boeing Co. has told its biggest supplier to freeze a recently restarted production of parts for the 737 MAX to prevent creating a glut of new jets for airlines adjusting to the slump in demand amid the coronavirus pandemic.

Spirit AeroSystems Holdings Inc, which makes the fuselage and other parts for the MAX, said late Wednesday it had been asked by Boeing to halt efforts on four MAX jets and avoid starting work on 16 more planes.

The moves highlight a sharp industry divide over how many planes Boeing and rival Airbus SE should make. Executives are split over whether airlines will opt for new planes or hold onto older aircraft as they recover from depressed demand.

Boeing said it is continuing to resume the 737 MAX production it began two weeks ago, but has temporarily asked its biggest supplier to halt further work, likely reducing the number of new planes it makes this year. The primary reason doesn't appear to stem from any new complication in securing essential federal safety approvals to return the MAX fleet to the air.

"To reflect the slower ramp and align our supply inventories, we're working closely with our suppliers to adjust delivery schedules and rate profiles as appropriate," a Boeing spokesman said Thursday.

Boeing shares were recently down around 11%, with Spirit AeroSystems shedding 13%. The S&P Aerospace & Defense Index was 6% lower as other suppliers sold off.

More than half the world's fleet, some 14,000 jets, has been parked after travel restrictions and weakening economies brought much of the global airline industry to a halt. Boeing has delivered just 60 jets this year.

The U.S. aerospace giant halted MAX production in January after building an inventory of around 450 planes that remain grounded by regulators following two fatal crashes. It had already delivered more than 380 of the aircraft.

Spirit shares had soared alongside those of Boeing in recent weeks, as airlines have announced plans to resume more flying than previously expected this summer and economies start to reopen from pandemic-related lockdowns and travel bans.

Still, Spirit said it doesn't expect to produce parts for as many as the 125 MAX jets laid out in a deal inked with Boeing in April. Spirit has already cut thousands of jobs because of the prolonged MAX grounding and said late Wednesday it planned further reductions and would put 900 workers on a 21-day furlough starting next week.

Boeing hasn't disclosed its near-term production plans for the MAX other than a low initial rate. It also is reducing output of its wide-body jets because of depressed demand. However, it has continued to pay suppliers in an effort to maintain skills and employment to adjust to any rebound in orders.

Airlines have canceled hundreds of deals for the MAX and other jets, and reached deals to defer taking planes until later in the 2020s.

Some carriers have said they still want to take new MAX jets, either to replace older, less fuel-efficient planes that are being retired, or to raise cash by selling them to leasing companies and renting them back.

The MAX could be cleared to start flying passengers in the U.S. by fall, according to a person familiar with the process. Boeing has already pushed back its planning assumption for return to service from mid-year, but the person said training and maintenance tasks could extend that timetable into the fall.

The Federal Aviation Administration sees Boeing making slow but steady progress toward completing steps necessary for a crucial certification flight in coming weeks, according to the person.

Boeing this week issued a long-awaited service bulletin advising airlines how to begin relocating certain wiring inside MAX fuselages to resolve concerns about potential short-circuits, which in extreme cases could result in serious flight-control hazards.

The company also has distributed proposed revisions to training standards for the MAX, including more than a half-dozen new emergency checklists and a revised training manual, according to the person and a Boeing message to airlines reviewed by The Wall Street Journal.

The changes, including specific training requirements for mandatory ground-simulator sessions and individual pilot training on personal digital devices, still need to be formally vetted and approved by the FAA and a group of international regulators and commercial pilots.

Boeing has alerted carriers, according to part of its message, that some of the materials will differ based on requirements of various national aviation authorities. Implementing such differences could further delay eventual return to commercial service globally, though Boeing's move to make drafts available is designed to speed up international reviews.

Write to Doug Cameron at doug.cameron@wsj.com and Andy Pasztor at andy.pasztor@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
AIRBUS SE 0.93% 116.78 Real-time Quote.30.07%
AT HOME GROUP INC. -0.08% 36.99 End-of-day quote.0.00%
EXTREME CO.,LTD. -0.87% 1024 End-of-day quote.-11.57%
LETS HOLDINGS GROUP CO., LTD. 1.78% 6.29 End-of-day quote.-19.15%
LOOK HOLDINGS INCORPORATED 4.36% 1411 End-of-day quote.47.44%
MAX CO., LTD. 0.74% 1897 End-of-day quote.31.83%
SPIRIT AEROSYSTEMS HOLDINGS, INC. -0.28% 43.09 Delayed Quote.10.23%
THE BOEING COMPANY -0.50% 225.34 Delayed Quote.5.27%
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Financials (USD)
Sales 2021 76 512 M - -
Net income 2021 1 138 M - -
Net Debt 2021 43 600 M - -
P/E ratio 2021 121x
Yield 2021 -
Capitalization 132 B 132 B -
EV / Sales 2021 2,30x
EV / Sales 2022 1,81x
Nbr of Employees 141 000
Free-Float 57,8%
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Number of Analysts 25
Last Close Price 225,34 $
Average target price 267,71 $
Spread / Average Target 18,8%
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Managers and Directors
David L. Calhoun President, Chief Executive Officer & Director
David A. Dohnalek Chief Financial Officer, Treasurer & Senior VP
Lawrence W. Kellner Non-Executive Chairman
Gregory L. Hyslop Chief Engineer, EVP-Engineering, Test & Technology
Susan Doniz Chief Information Officer & SVP-Data Analytics
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