Boeing woes hit supplier Spirit as it suspends guidance

Spirit AeroSystems became the latest supplier to Boeing’s troubled 737 Max to warn about the impact of the aircraft’s worldwide grounding as it suspended its full-year guidance and halted share buybacks.

The US company is Boeing’s biggest parts supplier and produces 70 per cent of the 737’s aerostructure, including the entire fuselage, the thrusters and the flaps and slats of the wings.

Despite reporting strong first-quarter results, Spirit said Boeing’s decision to cut the Max’s monthly production rate from 52 to 42, and not ramp up to 57 by June as expected, meant its prior guidance no longer stood.

Spirit said in February that it expected revenues for the full year to be between $8bn and $8.2bn. Adjusted free cash flow for the year was expected to be between $625m and $675m.

It is also pausing share repurchases.

The company struck a deal with Boeing this month to hold its current rate of 52 jets. Boeing will pay for the incremental parts produced while they are stored at Spirit’s factories until required by the plane maker.

Tom Gentile, Spirit chief executive, said the Max programme represented about 50 per cent of the company’s annual revenues.

Spirit is taking a number of steps to mitigate the financial impact of the delayed production rate increase of the Max after two crashes, which killed 346 people.

The actions include reducing expenses, freezing recruitment and cutting discretionary spending. Spirit will also delay capital expenditure by about $50m, which will now be between $200m and $250m.

Mr Gentile said that Spirit would also receive certain advance payments from Boeing for material purchases, all of which were repayable.

He said that Spirit had “worked out a very good deal with Boeing to stabilise production” and allow the company and its supply chain “to remain as stable as possible”.

Once Boeing goes to 57 jets a month, Spirit will stay at a rate of 52 for some time to reduce the built-up inventory.

Shares in Spirit, which reported a 30 per cent rise in first-quarter net income to $163m, were up about 2 per cent in afternoon trading to $88.60. Revenues for the period rose just over 13 per cent to $1.97bn.

“Given that shares have already notably sold off, we think much of this . . . has been discounted into the price,” said analysts at Vertical Research Partners in a note.

The company is the latest supplier to warn of the financial impact of the grounding of the Max in the wake of the crashes.

Arconic, which supplies fasteners, airfoils and other parts, said on Tuesday it could face an earnings hit of 2 cents to 4 cents per share, or $9m-$18m, if Boeing continued its production slowdown until the end of this year.

Boeing reported a $1bn hit to its revenues and also suspended its full-year guidance.

The company on Wednesday said that J. Michael Luttig, its general counsel, would take on the newly-created position of counsellor and senior adviser to Boeing’s chief executive Dennis Muilenburg and the board to deal with all legal matters associated with the crashes.

Boeing is in the process of working on a software fix to correct flaws in the way that the plane’s anti-stall system, known as MCAS (manoeuvring characteristics augmentation system), operates.

The system was introduced on the latest of the US group’s best-selling jet and has been identified as a factor in the crashes.

Facing the media for the first time since the Ethiopian Airlines crash in March after Boeing’s annual meeting, Mr Muilenburg defended the original design of the Max.