Major 737 MAX Supplier Directed to Pause Production

By Ankur Deo | June 11, 2020

And the 737MAX drama continues. Just as we reported earlier today about Boeing not having delivered a single passenger jet in the month of May, a key supplier of Boeing – Spirit AeroSystems – was asked by Boeing to halt the work related to the 737MAX. This would potentially put the existing timeline for reintroducing the MAX to service in 2020 at a great risk.

Spirit revealed on June 10, 2020, that it received an official communication from Boeing last week directing it to pause any work on the four planned 737 MAX shipsets. A shipset refers to all the work done by Spirit on a single MAX aircraft. The communication also mentioned to avoid restarting production on 16 MAX shipsets, which were earlier planned to be delivered in 2020. Spirit AeroSystems plays a key role in manufacturing the fuselage of the 737 MAX aircraft. Post this revelation, shares of both, Boeing and Spirit, have plummeted by 10 and 13 percent respectively.

The Boeing 737 MAX has been grounded for over a year now. ©Al Jazeera

An official news statement from Spirit stated:

‘Based on the information in the letter, subsequent correspondence from Boeing dated June 9, 2020, and Spirit’s discussions with Boeing regarding 2020 737 MAX production, Spirit believes there will be a reduction to its previously disclosed 2020 737 MAX production plan of 125 shipsets.’

As production of the 737 MAX in 2020 would lessen, this could signal a few unwelcome things to investors as well. The MAX timeline is slipping back again, despite several recent reports that the FAA (Federal Aviation Administration) could be ready to start the re-certification process for the aircraft in a couple months. Moreover, the decrease in production rate would also mean that Boeing will deliver aircraft at a much lower rate than previously anticipated, thereby, strapping Boeing’s cash flow along with its suppliers, for the next couple of years.

The undelivered MAX aircraft parked at Boeing Facility. ©Bloomberg

Spirit AeroSystems is one of Boeing’s major supplier and generates a majority of its sales from the American manufacturer. This makes the company extremely sensitive to any grave news about Boeing. Spirit AeroSystems stated in a report:

‘The reduction in production of 737 MAX shipsets is to support Boeing’s alignment of near-term delivery schedules to its customers’ needs in light of COVID-19’s impact on air travel and airline operations, as well as to reduce unnecessary production costs.’

Given that Boeing has not been able to deliver a single passenger aircraft recently, it is natural that the commercial aircraft delivery plan had to thought upon. What are your thoughts on this step by Boeing? Do you believe that the 737 MAX will fly soon? Or will the MAX remain grounded up until next year? Let us know in the comments!

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