Boeing’s Overseas Airline Customers and Suppliers Sink on the Decision to Halt the 737 MAX
The fallout of Boeing’s decision to halt production of the 737 MAX reverberated around the globe on Tuesday.
Boeing’s European suppliers were among the biggest casualties with U.K. engineering firm Senior among the hardest hit. The company, which makes airframes for the 737 MAX, was one of the steepest fallers on the London Stock Exchange, its shares falling more than 9% at one point.
The company, whose first-half profits were hit by Boeing production cuts, stated in a mid-day trading statement on Tuesday it was working closely with Boeing, and plans to support the 737 MAX program. A week ago, the company said was considering selling its aerostructures division.
Safran, a French company that together with GE builds the fuel-efficient engines that power the 737 MAX, saw its shares tumble too, falling by 2.6%. Meanwhile, shares in U.K.-based engineering firm Meggitt, which also supplies some parts for the 737 MAX, fell by more than 1%.
Boeing employs more than 2,500 people in the U.K. and Ireland and has spent 7.6 billion pounds ($10 billion) with its U.K. supply chain between 2015 and 2018, according to its website.
Also hit were airlines that either have 737 MAXs in their fleet or have them on order. Investors fear that further delays to Boeing’s production schedule could slow these airlines’ growth or disrupt their flight schedules next summer.
Shares in British Airways owner IAG, which signed a letter of intent to order 200 737 MAXs in June, were down nearly 3% while Norwegian Air, which has grounded its 18 737 MAXs, were down 2%. Irish budget airline Ryanair, which has 210 737 MAXs on order, bucked the trend, with its shares rising just over 1% after starting the trading session in negative territory.
Europe’s budget carriers are particularly exposed to the plight of 737 MAX. This summer, Ryanair warned the availability of the 737 Max would cut into its growth projections and that it would be forced to scale back operations at unspecified airports and abandon whole markets in the interim. The situation has only gotten worse since then.
The 737 MAX has been grounded since March after crashes in Indonesia and Ethiopia that killed 346 people.
The disasters have plunged the manufacturer, America’s largest, into one of the deepest crises in its history and have cost it billions of dollars in higher production costs and compensation to airlines for delayed deliveries.
Boeing has made software fixes to the anti-stall system at the center of probes into the crashes but the U.S. Federal Avaiation Administration has said it will not approve the aircraft’s return to the skies before next year.
Based on first-half delivery figures, Boeing is set to lose its crown as the world’s biggest planemaker this year to European archrival Airbus, whose shares edged up 0.5% Tuesday.
Boeing has continued to build new planes while the 737 MAX has been grounded and now has around 400 of the aircraft in storage, it said in a statement Monday. (There are over 4,000 on order.)
“We have decided to prioritize the delivery of stored aircraft and temporarily suspend production on the 737 program beginning next month. We believe this decision is least disruptive to maintaining long-term production system and supply chain health,” the company said.
Boeing’s 737 MAX is a competitor to Airbus’s A320neo. Both are fuel efficient planes that are in demand as the European Union leads global efforts to reduce emissions to meet climate change goals.
Berenberg, in a note issued just before Boeing confirmed the suspension, said many companies would be affected, but singled out Spirit Aerosystems, Safran and Senior as companies “that could potentially experience greater disruption”.
Shares in Wichita, Kansas-based Spirit Aerosystems, which makes parts of the fuselage of the 737 MAX, fell by 1.6% in the U.S. Monday while Boeing itself closed down more than 4%.
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