April 8, 2019 / 9:55 AM / 14 days ago

Boeing's 737 production cut hits its shares and those of suppliers

PARIS (Reuters) - Shares of Boeing Co (BA.N) fell 5 percent on Monday after the company said it would cut production of its 737 MAX aircraft, as it struggles with worldwide grounding of the narrowbody jet following two fatal crashes in less than five months.

The production cut also weighed on shares of Boeing’s suppliers across the globe. Spirit AeroSystems (SPR.N) was 7 percent lower, while Triumph Group (TGI.N) dropped 6 percent. European suppliers such as Meggitt (MGGT.L), Melrose (MRON.L) and Safran (SAF.PA) fell between 0.4 percent and 2 percent.

The crash in Ethiopia last month and the crash of a Lion Air plane in Indonesia in October that killed all on board have left the world’s largest planemaker facing the worst crisis in its history, with several airlines deciding to hold off taking deliveries.

On Friday, the company cut its monthly 737 production by nearly 20 percent, signaling it did not expect aviation authorities to allow the plane back in the air anytime soon.[nL1N21N1ME]

“The 737 rate cut to 42/month should help resolve the MAX crisis but with a large 2019 cash hit,” brokerage Cowen wrote in a note on Monday. [nL3N21Q25N]

Bank of America Merrill Lynch analysts cut Boeing’s rating to “neutral” from “buy” on Monday, saying the 737 delay could last longer than previously expected and estimated 6 to 9 months of disruption versus 3 to 6 months forecast previously.

“We now assume the MAX grounding will last at least until July 2019 in a best-case scenario ... the move to 42/month on the 737 indicates to us greater uncertainty on the near- and longer-term outlook for the program and the stock,” Canaccord Genuity analyst Ken Herbert said in a note.

Including Monday’s losses, the grounding has so far wiped off about $26 billion from Boeing’s market value, making it one of the worst performers on the Dow this year.

Reporting by Sudip Kar-Gupta in Paris and Noor Zainab Hussain and Arjun Panchadar in Bengaluru; Editing by Keith Weir, Kirsten Donovan and Sriraj Kalluvila

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