Boeing's Turnaround Just Hit a Pivot Point. Here's What It Means for the Entire Aerospace Supply Chain.

Boeing (BA +0.95%) is aiming to boost its business by enhancing the delivery rate of its key aircraft, the narrow-body 737 MAX. Boosting production will expand earnings and cash flow for the company, and positively impact the aerospace supply chain built around it. As the largest U.S. exporter, Boeing's improved 737 MAX production can move U.S. exports by a couple of percentage points.

However, this development is also a signal for the supply chain, with GE Aerospace and Safran's joint venture CFM International being the primary suppliers of the sole engine option for the 737 MAX.

Boeing CEO Kelly Ortberg stated in September that production had not yet stabilized at 47 a month, but didn't foresee a significant delay. Nonetheless, he noted that the supply chain is in "really good shape," except for the wings Boeing produces itself. Ortberg expects the supply chain to align more closely with Boeing's rate as the company reaches its targets of 52 and then 57 a month by year-end.

When Boeing reaches production rates of 52 and 57 a month, its suppliers' earnings and cash flow are expected to surge, as Boeing clears pre-built inventory from its suppliers.

While GE Aerospace may face short-term losses due to the loss-making LEAP engines, the increased engine deliveries will result in lucrative long-term aftermarket revenue. Hexcel, Woodward, and Howmet, as OEM and aftermarket companies, stand to benefit immensely from the increase in 737 MAX production. The reduction in inventory also means these companies won't need to tie up cash in equipment inventory that Boeing uses inefficiently. Overall, these four stocks have significant potential for outperformance in the coming year.