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Boeing Orders Spirit AeroSystems to Halt Work on Parts for 20 737 MAX Airplanes

By Rich Smith – Jun 11, 2020 at 5:14PM

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The revenue impact on Spirit AeroSystems could exceed 16%.

It's been more than a month now since Boeing (BA 5.92%) announced plans to restart production of its troubled 737 MAX airliners, but it doesn't appear that things are going very well.

Last night, Boeing 737 parts supplier Spirit AeroSystems (SPR 10.40%) announced that it has been directed by Boeing to "pause" work on four 737 MAX shipsets. (One shipset comprises all the parts Spirit would ordinarily contribute to the production of an individual 737 MAX). Furthermore, said Spirit, it has been instructed to "avoid starting production on sixteen 737 MAX shipsets to be delivered in 2020, until otherwise directed by Boeing."  

From Boeing's point of view, these pauses and avoidances are necessary "in order to support Boeing's alignment of near-term delivery schedules to its customers' needs in light of COVID-19's impact on air travel and airline operations," which remain significantly depressed by the coronavirus pandemic. But for Spirit, this is very bad news.

Collage of an airplane, coronaviruses, and a world map

Image source: Getty Images.

As Spirit notes in its most recent 10-K filing with the SEC, producing shipsets for the production of Boeing's 737 airplanes accounts for "approximately 53% of our net revenues" in a given year. Now, production of as many as 20 such shipsets are being postponed, and "Spirit believes there will be a reduction to Spirit's previously disclosed 2020 737 MAX production plan of 125 shipsets" -- perhaps even more than the 20 shipsets already described.

What does it mean for Spirit? Probably, as much as a 16% hit to revenues this year -- and maybe even more than that.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Spirit AeroSystems Holdings, Inc. Stock Quote
Spirit AeroSystems Holdings, Inc.
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