Boeing 737 Max grounding hits London-listed supplier

·Senior City Correspondent, Yahoo Finance UK
Aerial photos showing Boeing 737 Max airplanes parked at Boeing Field in Seattle, Washington, U.S. October 20, 2019. Picture taken October 20, 2019.  REUTERS/Gary He
Boeing 737 Max airplanes parked at Boeing Field in Seattle, Washington, US. Photo: Gary He/Reuters

The grounding of Boeing’s (BA) 737 Max jets worldwide will hit profits at aerospace parts supplier Meggitt (MGGT.L), the company said Tuesday.

Meggitt delivered a mixed update to investors, touting strong revenue growth at its defence business but warning that ongoing issues with the 737 Max will cap operating margins.

Meggitt, which is part of the FTSE 100, reported “stronger than previously anticipated” revenue growth in the third quarter, driven by orders from defence companies. Sales in its defence business grew by 20% in the quarter.

As a result, Meggitt now expects revenue growth of 6% to 7% for the year, up from a previous forecast of 4% to 6%.

But the company warned that supply chain pressures and the continued grounding of Boeing’s 737 Max jets means profits will be constrained. Operating margins will be “towards the lower end of our guidance”, between 17.7% and 18.2%.

Aviation authorities around the world took the decision to ground Boeing’s 737 Max jets in March after a series of crashes that killed hundreds of passengers. The crashes have been blamed on problems with the aircraft’s software system and US authorities are investigating. So far, the incident has cost Boeing at least $9.2bn (£7.1bn).

Meggitt had signed contracts to supply spare parts for the 737 Max but the grounding means demand has been stifled.

Boeing shares jumped higher on Monday after the aerospace giant said it could restart deliveries of the 737 Max as soon as December and flights could resume as soon as January. Both forecasts are dependant on regulatory approval.

Meggitt said in its investor update: “With exposure to some of the fastest growing platforms and hardest working fleets across both civil aerospace and defence, and continued progress on our strategic initiatives, the Group remains well positioned for the future and we look forward to delivering another year of profitable growth.”

Meggitt shares were up 0.4% in early trade in London as investors assessed the mixed picture for the company.

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