GE warns of cash flow hit from grounded Boeing 737 Max

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Grounded Boeing 737 MAX aircraft are seen parked in an aerial photo at Boeing Field in Seattle, Washington

Lindsey Wasson | Reuters

General Electric‘s cash flow took a hit from the grounded 737 Max, and the manufacturer of the engines for the popular planes warned on Wednesday that the trend would persist through 2019, as the fallout from two fatal crashes ripples through Boeing’s supply chain.

The jetliners, Boeing’s best seller, have been grounded since mid-March after the second of two crashes within five months. Together the two crashes killed 346 people.

GE and French aerospace company Safran produce the Leap-1B engines on the Boeing 737 Max through a joint venture called CFM. GE said they cut production of the engines in the second quarter and that its cash flow took a roughly $900 million hit in the first half of the year. GE said it expects the grounding will lower cash flow by $400 million per quarter in the second half.

Boeing halted deliveries of the planes and slashed production of the 737 Max by nearly a fifth to 42 a month. Boeing expects the planes to fly again by the end of the fourth quarter, but regulators have not said when they plan to lift the grounding. Last week, Boeing warned it could pause production of the jets altogether if there are more delays to the planes’ return, which could have a greater impact on suppliers and airline customers.

GE, which reported stronger-than-expected profits in the second quarter, has other exposure to the grounded planes through its aircraft leasing unit. The company said it has $2.1 billion in net assets tied to the Max but said it did not post any impairment charges in the first half of the year.

“We continue to monitor these developments with our airline customers, lessees and Boeing,” GE said in a securities filing.

Another Boeing 737 Max supplier, Spirit Aerosystems, said the grounding squeezed the margins on its fuselages unit. The Wichita, Kansas-based company has tried to cut costs amid the grounding by freezing hiring, offering voluntary retirements, pausing share repurchases and deferring spending.

“Making such a quick adjustment to the production schedule creates significant disruption in a complex production system like the 737,” Spirit CEO Tom Gentile said in a quarterly earnings release Wednesday. “We will continue to take full advantage of this pause in [737 Max production] rate increases to focus on improving quality, factory efficiency, and supply chain health.”

Spirit said its revenue rose 10% in the quarter ended in June, to $2 billion, thanks to higher production of Boeing 787 and 777 wide-body planes.

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