By Doug Cameron
Boeing Co. is planning more support for suppliers for its 737
MAX jetliner to prepare them for restarting production -- and to
dissuade some from seeking more business from Airbus SE.
Boeing suspended MAX production in January after building more
than 400 planes it was unable to deliver. Regulators grounded the
aircraft in March last year, following the second of two fatal
crashes that claimed a total of 346 lives.
That has left a network of more than 600 big suppliers and
hundreds of smaller firms in limbo about business that in some
cases contributed half their annual sales. Many suppliers had
expanded factories and hired more staff to help Boeing fill orders
for more than 4,500 MAX jets it had planned to build at a rate of
57 a month. Now, analysts say, it could take three years to reach
that level when production restarts after the plane is cleared to
fly again.
Heading the effort is Stan Deal, elevated to lead the Boeing
Commercial Airplanes unit last October, after the ouster of Kevin
McAllister. Mr. Deal formerly ran Boeing's service arm, but he had
also headed its supply-chain relations earlier in his 34-year
career at the company.
Boeing suppliers said they have been given three potential
schedules for resuming production, ranging from about 100 to 300
planes this year, depending on when assembly starts. Boeing has
said it doesn't expect approval of new software and training
regimens for the plane until midyear.
The company said it plans to stockpile more parts than in the
past to guarantee order flow for suppliers.
In addition, Boeing has earmarked some of the $4 billion set
aside over the next 18 months for cash advances and other financial
support to suppliers, to address MAX production fluctuations.
"Right now, it's really liquidity and where they need help or
support," Boeing Chief Financial Officer Greg Smith said at an
investor conference earlier this month.
The longer-term risk is that some suppliers may curb their
business with the aerospace giant. Some, including Spirit
AeroSystems Holdings Inc., are already reducing their reliance on
Boeing by pursuing more work for Airbus and military customers.
General Electric Co. and Safran SA, which make MAX engines in a
joint venture, are also looking to expand work with Airbus,
developing an engine for the A330neo jetliner that at present is
powered only by Rolls-Royce Holdings PLC.
"The big risk is major suppliers don't bid on the next Boeing
aircraft," said Kevin Michaels, managing director of AeroDynamic
Advisory LLC, which counts large and small MAX suppliers among its
clients.
So far, most suppliers have weathered the pause in MAX-related
business even though in some cases it amounted to as much as half
their revenue. Many have continued production at lower rates,
stockpiling parts and redirecting workers to make more parts for
Airbus and military jets.
"These guys are going to lay off workers unless they get
support," said Mr. Michaels.
A tight labor market for aerospace engineers and specialized
assembly staff could make it tough to recruit workers when
production resumes, suppliers said.
Some of Boeing's largest suppliers said on recent earnings calls
that the MAX production halt would hurt sales and profits this
year. GE Chief Executive Larry Culp said Wednesday that the company
would burn about $2 billion in cash flow during the first quarter
due in part to pressure on the joint venture with Safran. That
business is making engines for around 20 planes a month, half their
output rate last year.
Airbus has had its own problems boosting output of its
A320neo-range jets because of shortages of parts and assembly
snafus. It shares many smaller suppliers with Boeing and plans to
expand its own production over the next several years.
Executives at a recent supply-chain conference near Seattle said
the two deals have provided more certainty to smaller firms that
they can continue production and prepare to resume shipping parts
to Boeing and other suppliers.
"Most suppliers know when production should resume and at what
rates," said John Plueger, chief executive of plane rental giant
Air Lease Corp., one of the largest MAX customers.
Spirit, one of the biggest MAX suppliers, was building 52
fuselages a month before halting output at the end of 2019, with
around 100 in storage awaiting shipment by rail to the Boeing plant
in Renton, Wash., where the jet is assembled.
Boeing recently signed a deal for the company to produce 216
fuselages this year and will lend Spirit $225 million this quarter.
Separately, GE and Safran have said they plan to make engines for
around 20 MAX planes a month, half their output rate last year.
Wichita, Kan.-based Spirit in January laid off 2,800 workers, a
third of whom had made fuselages and wing parts for the MAX.
Another 300 workers have been laid off at other suppliers,
including Berkshire Hathaway Inc.'s Precision Castparts, according
to regulatory filings. Arconic Inc., which makes casts and forgings
for jet engines, expects to decide in the summer whether to cut
staff.
Berkshire Hathaway, which also owns stakes in three U.S.
airlines hit by the MAX grounding, said in its annual report
published Saturday that the halt in production may hurt demand for
some of its aerospace products this year. However, it expects to
make up a "substantial" portion of this from extra volume on other
aircraft programs.
Boeing hasn't laid off any staff as a result of the MAX
production halt. Some 3,000 assembly workers have been redeployed
to other programs and to develop practices to improve the
efficiency of future MAX production, the company said.
The company isn't budging on one part of the Partnering for
Success supplier program introduced in 2012 and aimed at cutting
prices: How long it takes to pay most of them, a period that in
recent years extended to 90 days or more, from 30 days.
"The most useful thing Boeing could do is ease the payment
terms," said one supplier, who declined to be named to protect
business with the company.
Boeing said it is evaluating the impact of the production halt
on each supplier. "We continually evaluate the impact to each
supplier, and depending on various factors, we are providing a
range of support to at-risk businesses," said a spokesman.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
February 23, 2020 08:58 ET (13:58 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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