Boeing [NYSE: BA] told its supplier of aircraft fuselages to pause production on four 737 MAX units and avoid starting work on another 16 units scheduled for delivery this year.
The aircraft manufacturer said it’s decision is tied to the coronavirus’ devastating impact on the airline industry’s finances and the need to avoid unnecessary production costs when airlines are canceling or postponing orders for new airplanes they no longer can afford. Airlines grounded most of their fleets in response to government travel bans and have been cutting all non-essential expenses to reduce red ink.
The drawdown in 737 MAX fuselage orders from Boeing is another blow to Wichita, Kansas-based Spirit AeroSystems [NYSE: SPR], which has already experienced a significant reduction in output since the grounding of the 737 MAX aircraft fleet in March 2019 due to airworthiness concerns after two high-profile crashes that killed 346 people.
Boeing resumed limited production in May after shutting down MAX plants in January. At the start of the year, Boeing and Spirit reached an agreement to ramp up production of 737 MAX fuselages to 216 in 2020, before reducing planned output to 125 shipsets – a big difference from its former production of 52 fuselages a month before the grounding.
“Spirit does not yet have definitive information on what the magnitude of the reduction will be but expects it will be more than 20 shipsets,” the company said in a statement on Wednesday, June 10.
Spirit said it is still in discussions with Boeing to determine its 737 MAX fuselage production for the remainder of the year.
Spirit said it will place employees who work on the aircraft on a 21-day, unpaid furlough, effective June 15. It also said, effective this Thursday, the hourly workforce at its Tulsa and McAlester facilities will be reduced.
Leeham News & Analysis reported that Boeing is currently producing about one 737 MAX airplane per month. The company has a backlog of 3,800 MAX orders, which reflects more than 500 suspended orders.
At the start of the year, Spirit eliminated more than 4,500 jobs and reduced its executive pay by 20%.
While the 737 MAX is designed for passenger travel, it does offer belly capacity for small or loose shipments, which is appreciated by freight forwarders and shippers.
Southwest Airlines had placed the most orders for the 737, but is negotiating with Boeing on a revised order and delivery schedule. Boeing has produced 27 MAX aircraft for Southwest since safety authorities issued the no-fly order, but was not allowed to deliver them. The grounding hurt the airline’s growth plans last year, but with travel demand falling through the floor due to the pandemic, Southwest doesn’t need the airplanes anytime soon.
Boeing expects to complete MAX recertification flights by the end of June to demonstrate to the Federal Aviation Administration that the plane can operate safely with changes to the flight-control system, according to CNBC.
Spirit said it also remains concerned about the COVID-19 pandemic’s impact on the production of other Boeing and Airbus [OTCMKTS: EADSY] aircraft, including its fuselages for the Boeing 787 and Airbus A350 planes.
The company currently expects a second quarter revenue loss of about $70 million to $90 million on the 787 and $15 million to $20 million on the A350.
(Eric Kulisch contributed to this article.)
(Click to read more American Shipper/FreightWaves articles by Chris Gillis.)