Something interesting happened to GE’s stock (GE) on news from Boeing (BA) late Monday that it will indefinitely halt production on its troubled 737 Max jetliner.
GE’s stock didn’t go down early Tuesday similar to other suppliers in the path of Boeing’s latest misfortune. And one GE analyst on the Street — an often critic of the industrial icon —thinks there is a very key reason why the stock held firm.
“If the [Boeing production] shutdown were to extend beyond a month (or so), we believe it should represent a significant future cash benefit for GE as the company won't be producing money losing engines (ie, the avoidance of commensurate cash drag),” says Gordon Haskett analyst John Inch. “To the point, we believe much of GE's cost structure associated with the MAX to be significantly variable, with a high majority of the engine cost attributable to materials with a relatively small portion attributable to direct labor.”
With GE undergoing a massive transformation under CEO Larry Culp — and cash flow still pressured in businesses such as Power —anything perceived to stall the pace of cash burn related to the Boeing situation should be welcomed by investors. Boeing’s production halt, to Inch’s point, falls under that cash burn stalling category.
That doesn’t mean GE — which makes the engines for the Max in partnership with France’s Safran — isn’t rooting for the Max to get back into the air as soon as possible in 2020.
Back when Boeing slashed its monthly Max production to 42 from 52 in April, GE got nailed with a $400 million quarterly reduction in cash flow. A Max production halt deep into 2020 would keep GE from pulling in that business, which is vital to its overall investment profile and turnaround efforts.
“We’re working closely with Boeing and our airline customers to ensure the safe return to service of the 737 MAX. We are partnering with our customers and suppliers to mitigate the impact of the temporary slowdown of the 737 MAX, while protecting the company’s ability to accelerate production as needed in the future,” a GE spokesperson told Yahoo Finance via email.
Warned Credit Suisse analysts following Boeing’s news, “Without more detail on the duration of the suspension and the supplier terms, it is difficult to gauge the economic impact of this decision to Boeing and its suppliers.”
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi
Read the latest financial and business news from Yahoo Finance
Beyond Meat founder: things are going very well with McDonald’s
Starbucks CEO on what China has in store for the coffee giant
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.
