(Reuters) - Boeing Co’s suppliers are bracing for a possible halt in production of the 737 MAX, as the grounding of the planemaker’s fast-selling aircraft is pushed into 2020, possibly resulting in lost revenues and adding to billions of dollars in costs.
Boeing has continued to purchase parts from some suppliers at a production rate higher than its own, in order to keep the supply chain fluid and avoid major disruptions when the MAX returns to service.
Analysts say a suspension of MAX production would pressure suppliers, depending on the sales exposure they have to Boeing.
The aero parts maker gets nearly 80% of revenue from Boeing.
It makes the MAX fuselage, pylons, thrust reverser, wing leading edges and engine nacelles.
Spirit has continued to churn 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.
The company said in October it will not produce 737 MAX parts at a rate higher than 52 per month through 2020, 2021 and possibly into 2022, but analysts are concerned that will hold true if Boeing cuts production.
“A further rate cut puts downward pressure on Spirit’s production rate in our view given the accelerated build-up of (MAX) fuselages,” Jefferies analyst Sheila Kahyaoglu said.
Spirit AeroSystems spokeswoman Keturah Austin said: “Should Boeing make a decision to change its production rate on the MAX and expectations for suppliers, we will work with them to understand the impact to Spirit AeroSystems.”
The joint venture company of General Electric and Safran SA is the biggest supplier of engines to the MAX.
Safran has warned if the grounding lasts until the end of the year, its cash conversion could dip below its targeted 50-55% range of recurring operating income.
GE has said it expects the grounding of the MAX to reduce its cash flow by $1.4 billion in 2019.
“We’re working closely with Boeing and our carrier customers to ensure the safe return to service of the 737 MAX,” a GE spokeswoman said.
Safran declined to comment.
Boeing is biggest customer for the British engineer’s aerospace unit.
It makes MAX parts including airframes and engine build-up tubes.
The company has warned that MAX production cuts are weighing on its aerospace segment margins.
“We remain in close contact with our 737 MAX customers. We would of course take the appropriate action should there be any changes to production rates, which at this stage we cannot confirm,” a Senior spokesperson said.
United Technologies Corp
The U.S. industrial conglomerate counts Boeing among its biggest customers and has warned of a 10 cent hit to 2019 earnings per share due to the MAX grounding.
It makes landing systems, avionics and interior lighting for the MAX.
United Technologies declined to comment.
Honeywell International Inc
The diversified U.S. manufacturer counts Boeing among its biggest customers.
It makes parts including auxiliary power units, weather radars and cockpit advisory systems that increase flight crew awareness of surroundings during taxi, takeoff and landing.
Honeywell did not respond to a request for comment.
Boeing is Hexcel’s second-biggest customer, accounting for 25% of its annual sales.
It makes composite materials used on the MAX airframe and engines. Hexcel, which lowered its 2019 sales outlook in October due to a delay in MAX’s re-entry into service, declined to comment on the implications of a potential freeze in MAX production.
The U.S. aircraft parts maker gets about 15% of its annual sales from Boeing, its biggest customer.
It makes parts including thrust reverser actuation system for the MAX. Woodward has said the MAX grounding has weighed on its sales growth. The company, which expects the MAX to return to service in the first quarter of 2020, did not respond to a request for comment.
The UK-based aircraft parts maker counts Boeing among its largest customers.
It makes parts including fire protection system for the MAX engine and auxiliary power unit.
Meggitt’s said its exposure to the MAX is small and the company does not expect to put out an update regarding the financial impact from Boeing potentially halting the airplane’s output.
Meggitt has previously cited an about $1 million hit to its profit for every month the MAX remains grounded.
Source: Company filings and presentations, Reuters reports
Compiled by Ankit Ajmera and Dominic Roshan in Bengaluru; Editing by Maju Samuel