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Boeing 737 Max suspension sends shockwaves through airline industry

·Senior City Correspondent, Yahoo Finance UK
An employee works near a Boeing 737 Max aircraft at Boeing's 737 Max production facility in Renton, Washington, U.S. December 16, 2019. REUTERS/Lindsey Wasson
Boeing has suspended production of its 737 Max aircraft. Photo: Lindsey Wasson/Reuters

Shares in engineering firms and airlines fell across Europe on Tuesday, after Boeing (BA) decided to suspend production of its troubled 737 Max airline.

Boeing announced late on Monday evening it was suspending production of the 737 Max from January. It will instead focus on delivering stored aircrafts.

“Throughout the grounding of the 737 MAX, Boeing has continued to build new airplanes and there are now approximately 400 airplanes in storage,” the company said in a statement.

“We have previously stated that we would continually evaluate our production plans should the MAX grounding continue longer than we expected. As a result of this ongoing evaluation, we have decided to prioritize the delivery of stored aircraft and temporarily suspend production on the 737 program beginning next month.”

Boeing is one of the two biggest plane manufactures in the world and the update sent shockwaves through the global aerospace industry, hitting suppliers and customers.

Engineering group Senior (SNR.L) saw shares fall 7% in London on Tuesday morning. The company had previously warned that Boeing’s 737 Max issues would hit margins.

Rolls-Royce (RR.L), which builds engines for Boeing, saw its share price fall by 1.5%. Melrose Industries (MRO.L), which owns aerospace parts maker GKN, declined by 1.1%. Meggitt (MGGT.L), another parts supplier that warned of its exposure to the 737 Max last month, was down 0.4%.

In Paris, Safran (SAF.PA) lost 3.8%. The company makes landing gear and other components used in the 737 MAX. Bank of America analysts estimated the production shutdown could cost the company €300m.

In Frankfurt, MTU Aero Engines (MTX.F) lost 0.8%.

Bank of America said in a Boeing investment note on Monday: “A pause in the 737MAX would be disruptive to the supply chain. A pause also could make it more difficult for the supply chain to get back to previous production rates.”

Airlines also saw their stock decline. Shares in Ryanair (RYA.L) fell 1.7%, shares in British Airways-owner IAG (IAG.L) dropped 2%, and Norwegian Air (NAS.OL) fell 1.6%. easyJet’s (EZJ.L) stock price declined by 3.9%, but the company was also impacted by a rating downgrade from UBS. The Swiss bank told clients to sell the stock on Tuesday.

Shares in Boeing rival Airbus (AIR.PA) initially rose 2% in Paris but the rally quickly faded. The stock was trading flat after almost an hour and a half of trade.

Boeing’s 737 MAX aircrafts were grounded globally in March after two crashes that killed hundreds of passengers. The fatal crashes were blamed on problems with the aircraft’s software and US authorities are investigating. The incident has so far cost Boeing at least $9.2bn (£7.1bn).

Boeing said last month that it might be possible to resume deliveries of the 737 MAX in December and commercial services on the jets may even resume as soon as January. Both decisions are dependant on approval from US regulators.

“We will continue to assess our progress towards return to service milestones and make determinations about resuming production and deliveries accordingly,” Boeing said in a statement on Monday.