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Abu Dhabi, UAESaturday 20 April 2019

Boeing suppliers' shares fall after 737 production cut move as Airbus gains

Decision due to grounding after crash knocked down the shares of aerospace groups involved in the aircraft, with Meggitt, Melrose and Safran all losing out

Boeing suppliers are feeling the squeeze following the move to cut production by US aircraft maker. AP
Boeing suppliers are feeling the squeeze following the move to cut production by US aircraft maker. AP

Boeing's decision to cut the production of its 737 aircraft hit the shares of its suppliers on Monday while its European rival Airbus rose.

Boeing said late on Friday it planned to cut its monthly 737 aircraft production by nearly 20 per cent after two deadly crashes, signalling it does not expect aviation authorities to allow the plane back in the air any time soon.

Boeing's decision knocked down the shares of aerospace groups involved in the 737, with Meggitt, Melrose and Safran all falling by between 1 per cent and 2.5 per cent, Reuters reported.

Boeing's shares were down by around 2.7 per cent in pre-market trading. Airbus shares meanwhile hit close to €120 mid-morning on Monday UK time after closing at €118.6 the previous session.

"If the lower rate endures through September 2019, the potential loss of revenue to Meggitt is $8.525 million, perhaps somewhat more as we figure the monthly 737 Max production rate was likely to rise towards 57 per month through 2019," wrote analysts at brokerage Jefferies.

Deliveries of Boeing's best-selling aircraft were frozen after a global grounding of the narrowbody model following the crash of an Ethiopian Airlines jet on March 10, killing all 157 people onboard.

Production will be cut to 42 aircraft per month from 52 starting in mid-April, the company said, without giving an end date.

Investment bank Cowen said Boeing's decision to cut the production of the 737 was the right thing to do.

"The 737 rate cut to 42/month should help resolve the Max crisis but with a large 2019 cash hit," wrote Cowen in a note.

Boeing is facing criminal and Congressional probes stemming from the disasters. To help quell concerns, the company’s board named a committee dedicated to reviewing the design and development of its aircraft.

“Safety is our responsibility, and we own it,” chief executive Dennis Muilenburg said on Friday after the close of regular trading. “When the Max returns to the skies, we’ve promised our airline customers and their passengers and crews that it will be as safe as any airplane ever to fly.”

In a Twitter post, Mr Mullenburg also said the company was "sorry for the lives lost in the recent 737 accidents".

Even at the slower production pace, Boeing faces about $3.6 billion in quarterly losses, said George Ferguson, an analyst with Bloomberg Intelligence. As it continues to build planes, the company is foregoing payments from customers who aren’t able to take delivery because of the grounding.

“Boeing’s 737 rate-cut to 42 a month from 52 starting in mid-April tells us the company thinks it will take longer than expected for regulators to end the grounding of the 737 Max.’’

Updated: April 8, 2019 02:04 PM

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