Boeing to stockpile 737 Max parts, offer financial support for suppliers

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.

Ticker	Security	Last	Change	Change %
BA	THE BOEING CO.	146.11	+0.70	+0.48%

Heading the effort is Stan Deal, elevated to lead the Boeing Commercial Airplanes unit last October, after the ouster of Kevin McAllister. 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 FINDS DEBRIS IN FUEL TANKS OF MANY UNDELIVERED 737 MAX JETS

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.

FEDERAL PROSECUTORS PROBING IF BOEING PILOT KNOWINGLY LIED TO FAA: NYT

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 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.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

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.

CLICK HERE TO READ MORE ON FOX BUSINESS

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.