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Spirit says it may breach financial covenants after deeper Boeing 737 production cut
[BENGALURU] Spirit AeroSystems Holdings said on Monday it was at a risk of breaching its financial covenants, as top customer Boeing has asked the aero parts maker to substantially reduce 737 production this year due to the coronavirus crisis.
Shares of Spirit, which builds the fuselage, thrust reversers, engine pylons and wing components for the grounded 737 MAX, fell about 4 per cent in after-hours trading.
The company said it now expects to deliver only 72 shipsets - or complete sets of parts - to Boeing, compared with 125 planned earlier.
"Given the substantial production plan reduction, Spirit could breach the financial covenants under its credit agreement in the fourth quarter of 2020 without an amendment or waiver," the company said in a regulatory filing.
Spirit said it was seeking relief from its lenders, while warning that any further suspensions or cuts in production rates of the 737 MAX as well as other aircraft due to the Covid-19 pandemic may have a "material adverse" effect on its financial condition.
Spirit's profits were already under pressure after Boeing halted production of its once best-selling 737 MAX in January, following two deadly crashes over the last couple of years.
Earlier this year, Spirit reached a deal with Boeing to make 216 shipsets in 2020, but that was cut down to 125 shipsets in May, as the coronavirus crisis spiraled, and several airlines started deferring deliveries of planes.
As a result, Spirit has been forced to cut thousands of jobs and reduce its quarterly dividend by 90 per cent to just 1 cent per share.
The company had already delivered 35 737 shipsets to Boeing as of June 19, and expects to produce and deliver the remaining 37 shipsets over the rest of the year.