Saturday, April 20, 2019

Boeing takes on risk for excess 737 parts held at Spirit AeroSystems

A regulatory filing from Spirit AeroSystems in Wichita offers new details on how the risks and costs of its staggered 737 production plan with the Boeing Co. are being handled.

Boeing announced earlier this month that it would trim its production to 42 of the aircraft per month as it works to get its 737 MAX back in service following two deadly crashes of the jet in just over five months.

Spirit announced the same day that it had crafted a plan with Boeing to continue to build at the previous rate of 52 per month and store excess of the portions of the 737 it builds in inventory until Boeing was ready for delivery.

According to a notice filed Thursday by Spirit with the Securities and Exchange Commission, the Wichita-based manufacturer will still be paid for any of work held in inventory as any excess shipments that Boeing requests be held at Spirit’s facilities will still be considered as delivered to the company.

Under normal operations, the fuselages Spirit builds for the 737 are considered delivered once they are loaded on the rail cars at its facility for shipment to Boeing’s assembly line in Renton, Wash. The point of delivery is what triggers Boeing's payment to the Wichita supplier for that shipment.

The agreement also stipulates Boeing will be the company taking the risk — at least primarily — should anything happen to those excess fuselages or other components that Spirit builds.

“(The) title to and risk of any loss or damage to excess shipsets will be transferred to Boeing except to the extent loss or damage results from Spirit’s fault or negligence,” the filing states.

Spirit, meanwhile, will cover any incremental costs associated with holding the excess inventory.

The filing also states that the companies have agreed to certain advance payments for material purchases, all of which are repayable.

The agreement also give Boeing plenty of time to continue to sort out its issues with the 737 MAX, as it runs through May 1, 2020 — a duration that could potentially allow for future holds to excess inventory if there are complications in the planned ramp up of 737 production later this year.

The 737 MAX has been grounded since the middle of March and deliveries of the new variant to airline customers have been suspended.

Boeing CEO Dennis Muilenburg said this week that the company is progressing on the software upgrades it believes will give regulators the confidence to approve returning the troubled jet to service.

Additionally, suppliers both in Wichita and Seattle have reportedly been told that Boeing’s production ramp-up plans call for the rate to rise to 47 per month in June, back to 52 in July and then to the previously planned record-rate of 57 per month in September.

A representative from Spirit declined to comment beyond the filing. A Boeing spokesperson had not responded directly to questions about the agreement prior to publication of this story.

Not all of the 737s being built are the new MAX variant, though the model was expected to account for around 90 percent of 737 deliveries this year.

In addition to the full fuselages, Spirit also builds portions of the wing, engine pylons and nacelles, and thrust reversers on the 737.

Spirit is Wichita’s largest employer with more than 14,500 local workers, a number it has rapidly grown over that past year in large part to help meet the demand for Boeing’s narrow-body jet.

Work on the 737 spills out into Wichita's large supplier base, making it the single most important aircraft program to the city’s commercial aerospace industry.

(Daniel McCoy - Wichita Business Journal)

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