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Spirit AeroSystems to freeze parts production for 737 MAX as Boeing woes spread

Stock MarketsDec 20, 2019 11:45AM ET
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© Reuters. FILE PHOTO: Airplane fuselages bound for Boeing's 737 Max production facility sit in storage at their top supplier, Spirit AeroSystems Holdings Inc, in Wichita

By Ankit Ajmera

(Reuters) - Boeing's top supplier Spirit AeroSystems Inc (N:SPR) 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 2% in morning trade. The stock has lost nearly 22% in value since the fatal Ethiopian airlines crash in March that led to the worldwide grounding of the MAX.

"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 (NYSE:BA) has also decided to temporarily stop MAX production next month.

The planemaker had so far shielded major MAX suppliers from a financial hit following the grounding, continuing to purchase parts from suppliers at a 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.

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.

Boeing's 737 MAX production freeze next year could also hurt General Electric (N:GE), which supplies the aircraft engines along with France's Safran SA (PA:SAF).

JP Morgan analyst Stephen Tusa, a long-time bear on GE said on Friday that there would be a "major hole in growth" for the U.S. industrial conglomerate that has "likely taken in billions of advances".

GE did not have any update in response to a Reuters request for comment.

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

The uncertainty over the timing of the 737 MAX's return to service, loss of talent and the risk to the supply chain from the production halt, led ratings agencies to downgrade Boeing's debt ratings this week.

Spirit AeroSystems to freeze parts production for 737 MAX as Boeing woes spread
 

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