With Boeing putting a halt to the production of its flagship Boeing 737 Max jets with effect from January, IT outsourcing contracts worth more than $1 billion currently executed by Indian companies are at risk of termination.
The announcement follows the departure of chief executive Dennis Muilenburg earlier this week, which industry sources term it as a “brutal” sacking. The CEO was ousted as a sign of the ongoing crisis and as it struggled to win regulators’ trust after the deadly crashes in Indonesia and Ethiopia.
Michael Luttig, who was appointed senior adviser at the company in May after the plane malfunction crisis deepened, will also step down at the end of the year.
After the two crashes in Indonesia and Ethiopia that killed 346 people within a span of five months, the 737 MAX has been left grounded.
IT majors such as Tata Consultancy Services, HCL Technologies, Infosys, Cyient, and L&T Technology Services have direct exposure to Boeing or its suppliers’ ecosystem, which comprises engine manufacturers, body suppliers, and avionics providers, according to sources.
“Boeing figures on the top ten lists of many Indian service providers. So, those players will definitely be affected in the short run. But the larger issue is if Boeing is hit, overall spending in the aerospace segment will also come down,” a source privy to the development said.
After temporarily discontinuing the production of 737 Max wide-bodied aircraft earlier this month, the US-based aerospace giant told its suppliers to halt shipments starting from January.
According to estimates, the aerospace engineering outsourcing market worldwide is estimated at close to $4 billion per year, which is equally contributed by Boeing and Airbus. Of the $2 billion of IT works outsourced by Boeing, Indian service providers get mostly half the deals every year. Among the global service providers, Accenture and Capgemini lead the list.
Currently, suppliers to Boeing include engine manufacturers like Pratt & Whitney, Rolls Royce, General Electric, and Safran, while body parts of Boeing 737 Max are provided by Spirit AeroSystems and Safran. Similarly, Rockwell and Honeywell are the major avionics providers to Boeing’s programmes.
However, if 737 Max goes down, Boeing may increase its spend on other programmes like 797 (likely to come up with 225- and 275-seater aircraft), which will hopefully support the Indian engineering services firms.
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