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Boeing Asks for Output Cuts From 737 MAX Supplier as Virus Slams Demand

Boeing tells Spirit AeroSystems to slash output for the third time this year, another sign the airplane maker is struggling with slumping demand for new planes.

Boeing  (BA) - Get Boeing Company Report has told Spirit AeroSystems  (SPR) - Get Spirit AeroSystems Holdings, Inc. Class A Report, its biggest supplier of fuselage and parts for its still-grounded 737 MAX aircraft, to slash output for the third time this year, another sign the airplane maker continues to struggle with slumping demand for new planes amid the coronavirus pandemic.

In a regulatory filing, Spirit AeroSystems said it had received notice from Chicago-based Boeing that it now wants fuselages for just 37 jets through the remainder of 2020 (35 shipsets already have been delivered to Boeing) down from the 125 Boeing said it wanted in May. The planemaker had initially told Spirit to deliver 216 this year.

Boeing, which restarted MAX production in May after a five-month pause, directed Spirit to halt work in early June before updating its expected demand for fuselages in the letter last week. Boeing communicated its updated plans in a letter June 19, Spirit said.

The directive adds additional uncertainty to an already cloudy outlook for the MAX, which has been grounded for more than 15 months in the wake of two deadly crashes believed to have been caused by malfunctioning software. 

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It also comes as carriers continue to grapple with the Covid-19 pandemic and dramatically reduced demand for air travel, and in turn new planes - an issue that has plagued Boeing since the pandemic took hold in North America in mid-March.

For Spirit AeroSystems it particular, it could lead to a breach of financial covenants under its credit agreement if it continues to scale back production and delivery of Boeing parts.

Some 14,000 jets, more than half the world’s fleet, have been sitting idle in the wake of unprecedented travel restrictions and now weaker demand for air travel.

Shares of Spirit AeroSystems were down 11.74% at $24.02 in trading on Tuesday. Shares of Boeing were down 1.26% to $186.15.