Boeing 737 MAX freeze divides suppliers into haves and have-nots

Boeing Co’s decision to suspend aerospace’s biggest production line exposes contrasts in the U.S.-dominated 737 MAX supply chain, severely straining some niche machine shops while giving engine giants time to iron out their own wrinkles, Trend reports citing Reuters.

The 737 MAX production freeze, the latest fallout in a 9-month-old grounding crisis, has already kicked off tough negotiations between Boeing and Spirit AeroSystems, Boeing’s largest 737 supplier, one industry source said.

Kansas-based Spirit has staffed its factory with enough workers to maintain a pre-crisis build rate of 52 aircraft per month, rising to 57 aircraft, the person said.

Instead, furloughs in Kansas are likely if Boeing stops paying Spirit to build and store fuselages at those rates to conserve cash, the person said.

“No way can they keep going,” a second supply chain source said. Spirit declined comment.

Boeing declined comment on discussions with suppliers.

The fallout depends on how long Boeing’s freeze lasts, and how much if any compensation Boeing pays to prop up some of the roughly 680 suppliers that feed its best-selling program.

Payments may not come quickly.

Planemakers rarely signal any intention to help the supply chain in advance, otherwise hundreds of healthy firms would demand compensation immediately, the supply chain source said. Instead, Boeing will assess impacts and may quietly help some companies bridge the gap until production resumes, he said.

One U.S. supplier, however, said Boeing “will not compensate us or the supply chain for lost sales, full stop”, because the planemaker is not obligated to do so under contracts.

Boeing is caught between two conflicting pressures: conserving cash and maintaining its ability to ratchet production upwards once the MAX starts flying again - a goal that lies behind Boeing’s decision not to lay off any employees.

“The potential loss of talent, access to capital and incremental risk on the supply chain all create substantial uncertainty about Boeing’s ability to increase production levels once the pause ends,” Canaccord Genuity analyst Ken Herbert said.

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