Top Boeing 737 Max Supplier Rushes to Answer Production U-Turn

(Bloomberg) -- The largest supplier for the Boeing Co.’s 737 Max had been revving up to jump to a record production pace in June for the single-aisle jet.

Instead, Spirit AeroSystems Holdings Inc. is rushing to preserve cash, manage a mountain of inventory and shield its workforce from layoffs. Since the best-selling 737 model was grounded following a March 10 crash, the second deadly accident in five months, Boeing has scrapped the planned output increase and slowed work in its own factory south of Seattle.

While Spirit is shielded from an immediate production cut of its own under a deal with Boeing, the aerostructures supplier suspended its 2019 financial forecast amid the logistical and financial aftermath of the grounding. It’s a situation playing out across hundreds of companies that make the 600,000 parts that go into each of the Max aircraft.

“Our goal is to figure out how do we support Boeing,” Spirit Chief Executive Officer Tom Gentile said on an earnings call Wednesday. He described the impact as a “very serious situation” for Spirit AeroSystems, which builds about 70 percent of the 737 for Boeing.

Spirit rose 1.6 percent to $88.32 at 2:57 p.m. in New York. Through Tuesday, the shares had fallen 9.9 percent since the crash, similar to Boeing’s decline.

Factory Uncertainty

In withdrawing its outlook, the company cited uncertainty over how long its factories will maintain the current 52-jet monthly rate for 737 output. Boeing last week suspended its financial guidance due to the crisis.

Boeing will officially take delivery of the fuselages as they roll out of Spirit’s factory, ensuring that the supplier will be paid for its work even if the frames aren’t shipped for months. Any excess 737 airframes are being stored on the sprawling, two-mile-square campus surrounding the Wichita plant. If need be, Spirit could also tap a former Boeing Defense plant across the street, Gentile said.

“The good news is we’re in Kansas and we have a lot of flat land here and plenty of space,” he said.

The moves also mean there will be a production lag for Spirit once the Max is cleared by regulators to resume commercial flights. Once Boeing eventually moves to the 57-jet monthly production pace it had originally planned for mid-year, Spirit will continue at its current rate until the last of the stored fuselages makes the rail journey to Boeing’s factory in Renton, Washington.

Buffer Days

To avoid disruption, Spirit’s three 737 assembly lines will continue moving to the faster production tempo as planned. But the manufacturer is adding buffer days when work will halt and mechanics will tackle out-of-sequence jobs that had once been assigned to contractors, Gentile said.

Spirit will continue looking for acquisitions to diversify its business away from Boeing and the Max, which accounts for about half of sales.

“Certainly this situation has had a tremendous impact on the whole industry,” Gentile said. “But we don’t want to be in a rush to do anything. That’s when you end up doing a bad deal or overpaying.”

©2019 Bloomberg L.P.