Boeing move to suspend 737 Max production rattles airline industry
The ripple effects of Boeing’s decision to suspend production of the grounded 737 Max aircraft were felt around the world on Tuesday as shares in global suppliers to the US plane maker fell sharply.
Boeing temporarily suspended production of the grounded 737 Max aircraft on Monday after the Federal Aviation Administration said last week it would not approve the plane’s return to service before 2020. More than 700 Max jets were grounded around the world in March after two fatal crashes that claimed 346 lives.
While Boeing’s British manufacturing footprint is limited, it spends £2bn a year with 300 UK suppliers. They include the engineering group Senior, the defense technology firm QinetiQ, and the aerospace and defense firms Meggitt and Ultra Electronics. Advertisement
Senior, which makes air frame and engine components for the Max, was the biggest faller on the FTSE 250 index on Tuesday, down 9% to 169.8p. Boeing is the biggest customer for Senior’s aerospace division, which has been hit by a fall in revenues in recent months, partly because of the grounding of the 737 Max.
In a statement Senior said it could not give any update on the financial impact of the shutdown until it had clarified customers’ plans. These were thought to include Spirit Aerosystems, a US manufacturer which is heavily dependent on sales to Boeing, its former parent company.
Shares in other UK Boeing suppliers were also down – QinetiQ fell 1%, Meggitt, which makes the fire detector system for the Max engine and auxiliary power unit, slipped 1.6% and Ultra Electronics, which supplies wing ice protection systems to Boeing, lost 1.1%. Melrose Industries, whose GKN business has a contract to supply windows for the passenger cabin of the 737 Max until the end of 2025, also fell more than 0.8%.
The French firm Safran, one of Boeing’s biggest European suppliers, fell almost 3% but the shares of Boeing’s arch-rival Airbus gained by 0.6%. The grounding has already cost Boeing more than $9bn (£6.85bn) in customer compensation and extra costs. The financial effects have rippled around the US manufacturing sector as Boeing’s efforts to regain authorization have faced repeated setbacks.
Brett Ryan, senior US economist at Deutsche Bank, said he estimated the shutdown would knock 0.4 percentage points off real GDP growth in the US in the current quarter and the start of next year. The turmoil for suppliers could add to uncertainty over the performance of the manufacturing sector, which is already struggling with a global slump, he added.
Boeing, the world’s largest aviation manufacturer, has so far held back from making workers redundant, although it had been working on the assumption that it would gain regulatory approval during 2019 as recently as October. For many of Boeing’s suppliers the shutdown will add to financial pressures.
An extended pause to production could have further ramifications for airlines in the UK planning to operate the 737 Max. Shares in the owner of British Airways, International Airlines Group and Ryanair, which has ordered 135 Max planes, were both down by more than 2%.
TUI, which briefly flew 15 such planes and was expecting another eight deliveries earlier this year, said a temporary stop would not have any impact. Its next eight 737 Max aircraft are already built and in storage in Seattle.Advertisement
A spokesman described Boeing’s move as “a natural step – we had anticipated this, the most important thing is the approval from the FAA.” TUI last week said the 737 Max grounding would cost it €130m (£110m) if the plane returns to service in April, and up to €350-400m if it cannot fly next summer. Ryanair said its outlook remained unchanged from earlier this month, when it revised its expectations again to fly just 10 Max planes next summer, rather than 20. It said it would close two bases and fly a million fewer passengers as a result. IAG, which has signed a letter of intent for 200 737 Max planes, declined to comment. Its first deliveries would be due in 2023.
S: The Guardian