By Robert Wall and Andrew Tangel
PARIS -- With the grounding of Boeing Co.'s 737 MAX airliner
stretching into its fourth month, some suppliers are reconsidering
their decision to keep making parts for the plane at full steam, as
inventories swell and a timeline for recertifying the plane remains
hazy.
That is starting to damp a yearslong boom in jetliner production
that has supercharged profits across the industry. The heady demand
for parts to make all those planes, though, also has strained
supply lines, leading to shortages of things like engines and
seats.
The MAX-inspired pause comes as executives gather here next week
for the city's once-every-two-years aviation-industry bonanza, a
venue where plane makers and suppliers typically hash out
issues.
German seat maker Recaro Aircraft Seating GmbH initially kept
production lines going full throttle but now is dialing back, Chief
Executive Mark Hiller said. With some airlines pushing back
delivery plans of their MAX aircraft, fewer seats are needed in the
short term, he said.
"We are still producing for the MAX, just at a lower level," Mr.
Hiller said.
The Paris show is normally dominated by a race between Boeing
and rival Airbus SE to announce new jet orders. This year, that
competition is essentially on hold until the MAX -- which has
driven Boeing's order book -- is back in the air.
"We do not see anyone ordering the MAX until the grounding is
lifted," Credit Suisse aerospace analyst Olivier Brochet said this
month.
The grounding has delivered a financial hit to airlines that
have bought the plane, triggering a handful of profit warnings.
Airlines meanwhile face other headwinds, including rising labor
costs and a slowdown in the cargo business. This month the
International Air Transport Association cut its projections for
2019 collective airline-industry net profit by 21%, the sharpest
adjustment in several years. It estimated the industry would
deliver $28 billion in profit, the lowest level since 2014.
Suppliers, though, had largely kept pumping out parts, betting
that the grounding would be relatively short-lived. Some even saw
it as a chance to catch their breath, after years of scrambling to
meet Boeing's and Airbus's blistering deadlines. Stopping
production, and then starting back up again, can be more costly and
disruptive than keeping assembly lines humming, even at the expense
of building inventories.
CFM International, the joint venture between General Electric
Co. and Safran SA, which makes the MAX's engines, has so far kept
producing at its pre-grounding target rate. But CFM President Gaël
Méheust said he was now considering slowing that down. He used the
lull to get production back on schedule, after it fell behind amid
a surge in demand for the engines.
Apart from figuring out how to meter output, Mr. Méheust has
assembled a task force to make sure the company can quickly provide
technical support to airlines once the MAX is cleared to fly again.
Around 500 MAX planes have been idled. Many of their engines will
need some maintenance from the manufacturer before airlines can use
them again.
Some suppliers aren't slowing down. Tom Gentile, chief executive
of Spirit AeroSystems Holdings Inc., which makes the fuselage for
737s, said the company would still build 52 of them a month --
unchanged since before the grounding and matching Boeing'
pre-grounding output for the plane. Boeing has since throttled back
to 42 planes a month during the grounding.
Mr. Gentile said Boeing pays for the parts on delivery, but
Spirit is keeping them at storage sites. The large fuselages are
lined up outside the company's Wichita, Kan., facility. It is
storing wing flaps and pylons, used to mount engines, indoors.
Spirit has suspended financial guidance until there is more clarity
on the MAX grounding.
Aviation authorities grounded the jet after two fatal crashes,
one in Indonesia last year and one earlier this year in Ethiopia,
claiming 346 lives altogether. Boeing has vowed to fix a faulty
flight-control system at the center of both crashes. The Federal
Aviation Administration must certify the software before approving
the MAX to fly again. Other safety regulators around the world have
said they would need their own assurances.
In addition to the MAX crashes and grounding, global trade
tensions, particularly between the U.S. and China, are further
darkening the business outlook as executives arrive for the Paris
Air Show. Geopolitical tensions, especially in the Mideast, are
also weighing on sentiment.
"There is just a lot going on militarily and economically that
might give pause to people buying aircraft," said Robert
Lineberger, head of Deloitte's aerospace practice. The consulting
firm forecasts 785 to 870 orders this year at the show, for the
most common jetliners seating more than 110 passengers. That
compares to 907 orders in Paris two years ago.
Deteriorating trade relations also mean the outlook could
worsen, IATA Chief Economist Brian Pearce said this month. Rising
labor costs and demand weakness, particularly for airfreight, are
denting earnings.
"I am approaching the marketplace with a slightly higher degree
of sobriety," Airbus Chief Commercial Officer Christian Scherer
told reporters this month. Still, he said he was "not currently
worried about a serious slowdown in our commercial activity."
Airbus could provide the biggest splash at the show with the
potential launch of a new plane, dubbed the A321XLR. The plane
seeks to become an alternative to Boeing's out-of-production 757
midsize jet. That aircraft is larger than Boeing's MAX but smaller
than the 787 Dreamliner. It would be Airbus's longest-range
single-aisle plane, aimed to serve transatlantic markets that were
once the playground primarily for wide-body planes.
At the start of the year, Boeing was widely expected to launch
its own midsize plane, but industry officials say the MAX crisis
has now made that unlikely.
Write to Robert Wall at robert.wall@wsj.com and Andrew Tangel at
Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
June 13, 2019 09:12 ET (13:12 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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