World News

United cancels 737 MAX flights into June as Spirit AeroSystems to freeze parts production

By Ankit Ajmera and David Shepardson

(Reuters) – United Airlines Co is extending its cancellations of Boeing 737 MAX flights until June 4 as Boeing’s top supplier, Spirit AeroSystems Inc, <SPR.N> said it would stop making fuselages for the grounded jets.

United’s announcement is the longest that any U.S. carrier has scheduled for the grounded aircraft, after American Airlines <AAL.O> and Southwest Airlines Co <LUV.N> canceled flights into early April.

Spirit’s announcement came after the U.S. Federal Aviation Administration (FAA) said last week it still has nearly a dozen steps to complete before approving the jets for flight after a mid-March global safety ban in the wake of two fatal crashes that killed 346 people.

Boeing said last week that it was freezing 737 production in January.

The European Union Aviation Safety Agency confirmed its chief, Patrick Ky, told the Financial Times he expects to approve the 737 Max’s return to service in Europe by the end of February. Reuters has reported the FAA does not expect to allow the plane to fly until February at the earliest.

Shares of Spirit, which gets about 50% of its annual revenue from the 737 MAX, were down 0.7% in mid-day trading. The stock has lost nearly 22% in value since the Ethiopian Airlines crash in March that led to the worldwide grounding of the MAX.

A Lion Air 737 MAX plane crashed in Indonesia in October 2018.

“This suspension will have an adverse impact on Spirit’s business, financial condition, results of operations and cash flows,” the company said, adding it would halt production in January.

The planemaker had so far shielded major MAX suppliers from a financial hit, continuing to buy parts from suppliers in order to keep the supply chain running and avoid major disruptions when the MAX returns to service.

Spirit has been churning out parts for the jet at a rate of up to 52 units per month, even as Boeing cut its own production to 42 per month earlier this year.

Wichita, Kansas-based Spirit said on Friday it was evaluating “all potential actions to align its cost base with lower production levels expected in 2020”.

Boeing’s 737 MAX production freeze next year could also hurt General Electric <GE.N>, which supplies the aircraft engines along with France’s Safran SA <SAF.PA>.

JP Morgan analyst Stephen Tusa, a long-time bear on GE, said on Friday that there would be a “major hole in growth” for the U.S. industrial conglomerate that has “likely taken in billions of advances”.

GE did not have any update in response to a Reuters request for comment.

Analysts and some of the smaller suppliers have warned that a MAX production halt could last up to six months or more, leading to widespread losses across the commercial aerospace supply chain around the world.

(Reporting by Ankit Ajmera in Bengaluru and David Shepardson in Washington; Editing by Saumyadeb Chakrabarty, Shounak Dasgupta, Sweta Singh and Nick Macfie)



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