Boeing (BA) indicated earlier this week, it was temporarily halting production of the 737 MAX jet. The production halt will negatively impact companies in its supply chains such as Honeywell (HON), General Electric (GE), and United Technologies (UTX). The question is, “How much of an impact will the 737 MAX have on suppliers?” At a minimum, the grounding will create cash burn for suppliers:
The impact for suppliers is all about cash. More delays means more cash flow headwinds. Suppliers don’t get paid while jets sit parked. GE management said on the company’s third quarter earnings conference call that the 2019 impact of the MAX grounding was about $1.4 billion. Of course, GE expects to get paid eventually. GE makes the engines for MAX jets.
Boeing believes it can bring the 737 MAX back into service. However, GE is particularly vulnerable. Under former CEO Jeffrey Immelt, the company spent tens of billions of dollars on share buybacks and dividends. The $10 billion acquisition of Alstom’s (OTCPK:ALSMY) power business also did not help, as Power is being disrupted by alternative energy. The capital outlays have emaciated GE’s balance sheet. The company has had to resort to hiving off assets in order to pare debt and protect its credit rating. Read more: