Al Root

Labor unrest at Boeing could claim another casualty soon in the relatively fragile aerospace supply chain.

Wednesday evening, The Financial Times reported that Boeing's 737 MAX fuselage supplier Spirit AeroSystems Holdings would begin to furlough workers in the coming weeks if the Machinist strike against Boeing lingered.

Workers represented by the International Association of Machinists and Aerospace Workers walked out on Sept. 13 after rejecting a tentative agreement by an overwhelming majority.

Spirit didn't immediately respond to a request for comment about the furloughs.

The decision by Spirit isn't a surprise given the company's unique situation. Boeing accounted for about 70% of Spirit's commercial airplane revenue in 2023. With 737 MAX production shut down by the strike, there isn't much reason to keep producing parts they won't get paid for.

Spirit is also about to become a part of Boeing again. After months of negotiation, Boeing agreed to buy the company for about $8 billion, bringing Spirit back into the fold; Spirit was a part of Boeing until it was sold to private equity in 2005.

Boeing is repurchasing Spirit to help improve production quality. Problems leading to the Jan. 5 flight 737 MAX door-plug blowout started in Spirit's factory.

Investors might hear about limited furloughs at other suppliers, but the numbers should be small. Most aerospace suppliers also make parts for Airbus while also providing parts and services for planes in operations. Many have significant defense operations, too.

Suppliers really don't want to stop and start production, laying off workers and bringing them back. The entire aerospace-supply chain has struggled to ramp production back up after the Covid-19 pandemic. Part of the reason is significant employee turnover during the crisis, with older, more-experienced employees choosing to leave the industry.

In 2018, before the pandemic and the 737 MAX problems, Boeing delivered more than 800 planes. Airbus' deliveries peaked in 2019 when the company delivered some 860 jets. Wall Street doesn't see Airbus hitting a new high until 2026. Boeing isn't expected to eclipse 2018 volume until 2027.

The Machinists vote on a new tentative labor agreement on Friday. The new agreement includes additional wage hikes and benefits.

Investors will have to wait and see if workers accept it. If they do they will be back at work soon, and Boeing can scratch labor peace off its to-do list.

Boeing stock was up 0.9% in premarket trading at $153.55, while S&P 500 and Dow Jones Industrial Average futures were up 0.8% and 0.4%, respectively.

Since the strike began, Boeing stock was down about 6% entering Thursday trading. The strike hasn't been the biggest problem investors have faced, though. Shares were down almost 40% since the Jan. 5 door-plug blowout.

Write to Al Root at allen.root@dowjones.com

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September 26, 2024 08:51 ET (12:51 GMT)

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