Boeing Reaches Deal With 737 MAX Engine Suppliers
February 27 2020 - 2:54PM
Dow Jones News
By Doug Cameron and Thomas Gryta
Boeing Co. has agreed to cover payments for jet engines made for
its grounded 737 MAX, easing the burden of the production delay on
supplier General Electric Co.
The MAX jet is powered by LEAP-1B engines made by CFM, a joint
venture of GE and Safran SA of France. Executives at Safran
disclosed the Boeing agreement, reached this week, during the
French company's earnings call on Thursday.
"All the engines which are going to be delivered in 2020 will be
fully paid, net paid," said Safran Chief Executive Philippe
Petitcolin. He also said Boeing will cover payments for engines
that were delivered in 2019, many of which have been stuck on MAX
aircraft that Boeing assembled but cannot deliver. Normally, CFM
gets paid as the engines are produced but doesn't get its final
payment until the plane is delivered to an airline. Under the
agreement, full payment will be made upon delivery to Boeing.
"It's a complete payment of the engines by 2021," Mr. Petitcolin
said. He said CFM plans to produce, on average, 10 LEAP engines a
week for the MAX this year. Prior to halting production in January,
Boeing was making about 40 of the planes every month.
Safran executives, who had previously warned the MAX production
halt would hurt the company's cash flow by about EUR100 million
($109 million) a month, said the new deal with Boeing would "reset"
the cash-flow problem.
It isn't clear how the change would impact GE's outlook. A GE
spokeswoman said the company will discuss the agreement when it
updates investors on its financial outlook on March 4.
Representatives for Boeing had no immediate comment.
GE and Safran evenly split the revenue from the CFM partnership.
GE Chief Executive Larry Culp said last week that GE's
first-quarter cash flow would be about negative $2 billion, largely
because of pressure from the grounding of the 737 MAX. The company
reported $1.4 billion in negative cash flow from the MAX issues in
2019, partly because it was still producing engines without getting
paid for them.
The MAX has been grounded world-wide since last March, after a
pair of plane crashes within five months of each other killed 346
people. Boeing doesn't expect regulators to approve the plane to
fly again before midyear.
(END) Dow Jones Newswires
February 27, 2020 14:39 ET (19:39 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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