Boeing suppliers bracing for production freeze of grounded 737 MAX

By Eric M. Johnson and Tim Hepher

SEATTLE/PARIS (Reuters) - Boeing Co suppliers, customers and financiers braced on Monday for a possible freeze in Boeing 737 production for the first time in more than 20 years as the grounding of the best-selling MAX looks set to last well into 2020.

Two suppliers told Reuters that Boeing was likely to halt assembly of the jet, though some suppliers could be asked to keep producing to minimize disruption.

Boeing’s board was due to meet for a second day in Chicago on Monday to assess output decisions, with an announcement expected later in the day.

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A person briefed on the matter said on Sunday Boeing was considering whether to cut or halt production of its grounded 737 MAX after the Federal Aviation Administration (FAA) said last week it would not approve the plane’s return to service before 2020.

Boeing’s best-selling plane has been grounded since March after two crashes in Indonesia and Ethiopia killed 346 people, costing the plane manufacturer more than $9 billion so far.

Until now Boeing has continued to produce 737 MAX jets at a rate of 42 per month and purchase parts from suppliers at a rate of up to 52 units per month, even though deliveries are frozen until regulators approve the aircraft to fly commercially again.

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Halting production would ease a severe squeeze on cash tied up in roughly 375 undelivered planes, but only at the risk of causing industrial problems when Boeing tries to return to normal, industry sources said. Supply chains are already under strain due to record demand and abrupt changes in factory speed can cause snags.

Disruptions to production could also result in layoffs or furloughs of some of the 12,000 workers at Boeing’s 737 factory south of Seattle.

Boeing’s shares were down 4%, while Spirit AeroSystems Holdings Inc fell roughly 2%. Spirit is Boeing’s biggest supplier and makes the MAX fuselage along with other parts such as pylons.

Spirit said on Monday it would work with Boeing to understand the impact of any decision to change its MAX production rate.

Analysts highlighted Safran SA and Senior Plc as other suppliers that could experience disruption impacts.

The person briefed on the matter told Reuters a temporary shutdown was more likely than another cut.

Boeing said late on Sunday the company “will continue to assess production decisions based on the timing and conditions of return to service, which will be based on regulatory approvals and may vary by jurisdiction.”

Last week, Reuters reported that Boeing was delaying by months its overall plan to speed up production as the U.S. planemaker struggles to win regulatory approval to return the jetliner to commercial service.

Without the 737 MAX, airlines that rushed to buy the plane have scaled back flying schedules and delayed growth plans. Some 387 aircraft were flying before the grounding.

Still, U.S. airlines shares were higher on Monday as investors bet that a prolonged 737 MAX delay would limit capacity growth, underpinning higher airfares.

(Reporting by Eric M. Johnson in Seattle and Tim Hepher in Paris; Additional reporting by David Shepardson in Washington, Tracy Rucinski in Chicago and Ankit Ajmera in Bengaluru; Editing by Lisa Shumaker)

This story has not been edited by Firstpost staff and is generated by auto-feed.