LUV Southwest Airlines Co

By Jon Ostrower and Doug Cameron 

Boeing Co. has canceled a contract with a supplier of a key engine part for its 737 Max, causing the aerospace giant to change its design for the planned jetliner and abandon a piece of new advanced technology.

GKN PLC was to supply part of the thrust reverser, which slows a jet on landing, but Boeing canceled the deal over concerns that the U.K.-based company couldn't keep up with plans for a rapid increase in production.

The 737 Max, with 125 to 215 seats, is planned as a replacement for Boeing's most popular single-aisle jets, and is scheduled to enter service with Southwest Airlines Co. in the third quarter of 2017.

"We made this decision to ensure we have a product that is not only maintainable and reliable but is producible at the high production rates of the 737 program," Boeing said on Tuesday. The Chicago-based company said the move wouldn't affect the performance of the 737 Max or the timeline for the first flight, certification and delivery of the jets.

Boeing has almost 3,000 of the jets on order, and needs to boost output quickly to meet its ambitious goals. That means avoiding the supplier kinks that afflicted its 787 Dreamliner and military refueling tanker, which together triggered billions of dollars in charges.

The Wall Street Journal reported in August that producing titanium parts for the 737 Max's thrust reversers had emerged as a potential hurdle for the program.

Engineers have been wrestling with production problems linked to the inner wall of the thrust reverser, which is made from an exotic titanium rather than a composite material to save weight and withstand the high temperatures of the plane's new engines.

Boeing had touted the titanium technology as a major contributor to cutting fuel consumption and maintenance costs. Boeing has promised airlines that the 737 Max will provide a 14% improvement in fuel burn over existing jets.

GKN declined to comment. The company makes a host of other parts for Boeing commercial and military jets, including windows and drag-reducing winglets.

A person familiar with the contract said GKN was notified Monday of the contract termination and will produce enough parts for the first 30 to 40 aircraft to avoid disrupting Boeing's plan to certify the plane in 2017. It would then transition to a new design that was heavier with a yet to be determined supplier as it accelerates production. Boeing said the fix wouldn't be heavier.

Boeing executives earlier this year acknowledged the difficulties producing the titanium inner walls, but the company said in August it had "every confidence" that GKN would be up to the task.

Yet, concerns over the summer elevated the inner wall to the top of the development challenges at Boeing's commercial unit at the time, according to senior industry officials.

The twin Leap-1B engines on the 737 Max are made by CFM International, a joint venture between General Electric Co. and Safran SA, but Boeing contracted directly with GKN for the thrust-reverser parts.

Boeing started final assembly of the first 737 Max jets in its Renton, Wash., factory in September. It plans to boost monthly output from less than one to 52 before the end of the decade, an unprecedented ramp-up. Parts makers already have started accelerating production.

Investors are monitoring any problems that could slow Boeing's expansion plan at a time when there is also concern the company may have to trim production of its profitable 777 wide-body jet as sales transition to the new 777X.

Write to Jon Ostrower at jon.ostrower@wsj.com and Doug Cameron at doug.cameron@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 10, 2015 20:58 ET (01:58 GMT)

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