The global grounding of all the aircraft of Boeing’s 737 Max has hit the cash flow of General Electric. The United States based manufacturer of the engines that also supplies to this popular aircraft model from Boeing warned that the hit on its cash flow would is expected to continue for the rest of 2019.
All of the planes of Boeing’s 737 Max were grounded in March throughout the world after two fatal crashes involving the planes within a span of just five months. A total of 346 people were killed in the two accidents. The incidents and the subsequent grounding have also created havoc in the supply chain of Boeing.
Following the grounding of the planes, all deliveries of the best selling planes of Boeing was stopped by the company as well as bringing down the production of the planes by almost one fifth to 42 planes every month. This drop in production also prompted GE to bring down its production of the Leap-1B engines for the 737 Max planes that the company manufactures in partnership with the French aerospace company Safran. In the first half of the year, the production downsizing resulted in a hit of $600 million in its cash flow, GE said. The company also added that if the situation of the grounding of the planes continues for the rest of the current year, there would be a hit of $400 million per quarter in the cash flow of the company for the second half of the current year.
While none of the airline regulators across the world have mentioned anything about the returning of the 737 Max planes to the skies, Boeing expects that the planes would be allowed ot fly again by the end of the fourth quarter.
Boeing had warned last week that if the rounding of the planes continues further, it would be forced to totally halt the production of the planes and that would lead to a much greater impact for the supply chain of the company as well as the airline customers of Boeing.
GE however reported better than expected profits for the second quarter even though it is a greater exposure to the grounded 737 Max planes because of its aircraft leasing business. The company said that it did not post any impairment charges in the first half of the year even though it has an exposure of $2.1 billion in net assets related to the Max planes.
“We continue to monitor these developments with our airline customers, lessees and Boeing,” GE said in a securities filing.
The grounding of the 737 Max has squeezed the margins on its fuselages unit, said Spirit Aerosystems, another supplier of the Boeing 737 Max. the company has already undertaken a number of measures to counter the impact of the grounding by stopping recruitment, offering voluntary retirements, temporarily stopping share repurchases and postponing capital expenditure.
“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.”
(Adapted from CNBC.com)