Commercial aerospace giant Boeing struck a deal with key supplier Spirit AeroSystems Thursday regarding its embattled 737 MAX jet.
Boeing (ticker: BA) will likely build about 200 MAX jets in 2020. That’s a big drop from the 500-plus jets assembled in 2019, and far from the 680 jets the company plans to make when MAX production hits peak levels.
But if the plane comes back in mid-2020, as Boeing expects, MAX deliveries—including the parked inventory—should be roughly 300 jets, up from roughly 120 MAX planes delivered last year.
The MAX has been grounded world-wide since mid-March 2019 following two deadly crashes within five months. Boeing halted production in January. Up to that point, the company had built and parked about 400 jets. New CEO Dave Calhoun said the shutdown would last only a couple of months.
Boeing was producing 52 MAX jets a month before the grounding. The company cut the rate to 42 a month in April. Now investors know MAX production will come back very slowly.
“Under the agreement, Spirit will restart production slowly, ramping up deliveries throughout the year to reach a total of 216 MAX shipsets delivered to Boeing in 2020,” reads the company news release. “Spirit does not expect to achieve a production rate of 52 shipsets per month until late 2022.”
Spirit makes the fuselage as well as wing components for the 737 MAX.
The deal has implications for other aerospace suppliers. General Electric (GE) and its joint venture partner Safran (SAF.France), for instance, manufacture the Leap engines which power the MAX. The pair has been ramping up production for years to meet growing demand. The Leap engines also power the similar-sized Airbus (AIR.France) A320 NEO jet.
Airbus makes about 60 A320 jets a month. That works out to about 70 Leap-A engines for the GE and Safran joint venture named CFM. Don’t forget, each plane has two engines and United Technologies (UTX) Pratt & Whitney engines are also an option for airline customers buying an A320. In fact, the ”A” stands for Airbus. CFM makes the Leap-B engine for Boeing. The two engines are similar, but have different characteristics.
Last year CFM manufactured 1,736 Leap engines, GE told Barron’s. CFM was preparing to increase production to 2,000-plus engines in 2020, but the number produced this year will be closer to 1,200.
CFM sold 420 Leap engines in the fourth quarter.
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It’s a sales headwind for the entire Boeing supply chain, but there are still a lot of engines to build. The slowdown appears to make a great business—supplying high-priced aircraft parts on a huge plane program—a good business, at least for now.
The surprising part of the deal might be how long the MAX headwind will persist. Boeing isn’t expected to be back at 52 jets a month until 2022, almost three years after the initial grounding.
Boeing stock is down about 25% since the second deadly MAX crash involving an Ethiopian Airlines flight in March 2019; shares are trailing far behind comparable gains of the Dow Jones Industrial Average and S&P 500 over that span.
Other aerospace supplier stocks have continued to rise. Suppliers Barron’s tracks are up more than 20% since the second crash. Spirit is a special case. It derives about 80% of sales from Boeing. It’s shares are off about 33% since then.
Write to Al Root at allen.root@dowjones.com
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Here’s How Many 737 MAX Jets Boeing Will Build in 2020 - Barron's
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