Boeing’s decision to suspend production temporarily of its 737 Max airliner has hit the shares of UK and European suppliers to the US group, as concern deepens over when the aircraft will return to the skies.
Shares in France’s Safran, the world’s third-largest aerospace supplier, were one of the steepest fallers on the Stoxx 600 aerospace and defence index on Tuesday, declining about 3 per cent.
The Paris-based company warned in September that the grounding of the 737 Max would hit its cash flow by about €300m a quarter, up from the €200m that it estimated in the first quarter of the year.
Its forecasts were based on the Max being back in the air by the end of this year. The timetable for when regulators will allow the 737 Max, which was grounded after two fatal crashes, to return to service remains unclear.
Safran produces engines for Boeing through a joint venture with General Electric called CFM International.
In the UK, Senior, an engineering company that counts Boeing as one of its top customers, was the biggest decliner among suppliers, falling 9 per cent. The FTSE 250 group warned in August that margins at its aerospace business were going to be squeezed by the prolonged grounding of the Max.
The Hertfordshire-based company, which makes sensors and other high-tech components for equipment manufacturers in the aerospace, defence and power sectors, said on Tuesday that it will provide a further update on “the potential implications to its 2020 performance once it has clarification from its customers”. It added that its expectations for its performance in 2019 are unchanged.
Shares in a rival UK supplier Meggitt fell almost 2 per cent. The company said in November that margins would be “constrained” by the Max grounding, and would be towards the lower end of the 17.7 per cent to 18.2 per cent it had forecast.
Sheila Kahyaoglu, an analyst at Jefferies, said the decision would likely result in lay-offs across the supply chain. “The supply chain is unlikely to carry workers for 2-3 months in furloughs . . . that’s why this decision was so difficult and that’s why [Boeing] waited to December to do it.”
Boeing’s 737 Max supply chain also runs through a range of smaller suppliers in the UK. Relative minnows like Aeromet International, a Worcester-based supplier of advanced aluminium cast parts, and Maher, a Sheffield steel machinist, have also done work on the 737 Max.
Airlines have already been forced to delay their plans to return the Max to their fleets until March, a year after the second of two fatal crashes that killed 346 and forced the grounding of the fleet.
Boeing’s plans to suspend production of the 737 Max from next month comes as the company grapples with a lengthy regulatory review. The US group is to provide information regarding the production halt when it releases quarterly earnings next month.
Europe’s Airbus, Boeing’s major rival, was one of the index’s few risers, with a gain of 0.5 per cent.