(Reuters) - British engineer Senior Plc on Thursday warned that margins in its largest aerospace division will be hurt by Boeing Co’s production cuts following the global grounding of 737 MAX planes.
Senior makes a wide variety of components used in commercial and military jets and counts Boeing as one of its top customers. Significantly more work on new airline programs such as the 777X, 737 MAX and A320NEO, had boosted Senior’s revenue and profit last year.
The company said a part of its aerospace structures business in Seattle, Washington - Senior Aerospace AMT (AMT) - will be hit after the U.S. planemaker cut its production rate.
“This is one business in particular that is unlikely to be able to fully mitigate this impact of a cut to rate 42 instead of gearing up for an increase to rate 57,” Senior said in a statement.
AMT is Senior’s largest business in the structures unit and has the largest exposure within the company to the 737 MAX.
Senior, whose products are also used in trucks and off-road vehicles, said it was gearing up for increased production and therefore costs related to the ramp up and other production were unlikely to be fully offset.
The company said the cuts will impact its aerospace segment margins for the rest of 2019. The division accounts for 71 percent of Senior’s total revenue and it supplies parts directly to Boeing as well as engine suppliers and other customers.
Senior now expects aerospace margins for this year to be at 10 percent, compared with previous guidance of 10.6 percent, Finance Chief Bindi Foyle said on a call with analysts.
The company, however, forecast only a modest reduction to its overall expectations as it actively works to cut down costs and is boosted by lower taxes.
Boeing, the world’s largest planemaker, is facing one of its biggest crises following the fatal crashes of 737 MAX planes flown by Lion Air in Indonesia and Ethiopian Airlines.
Senior shares were down 1.1 percent at 225 pence as of 830 GMT.
Reporting by Pushkala Aripaka in Bengaluru; editing by Bernard Orr and Gopakumar Warrier