Boeing’s biggest supplier suspends output after strike vote

Boeing Co.’s biggest supplier suspended production after union workers voted to strike, a surprise development that risks disrupting the planemaker’s plan to lift output of its cash-cow 737 Max jet. 

Spirit AeroSystems Holdings Inc. slid as much as 15% in New York trading, its biggest intraday drop in two months, after union members rejected a four-year contract proposal supported by their leadership. Boeing, which relies on its former unit to make 737 fuselages and other aircraft assemblies, fell as much as 4%. 

The dispute comes as Boeing prepares to increase output of the 737 Max, its bestselling aircraft and a crucial driver of cash flow. The planemaker plans to raise the monthly build rate to 42 of the single-aisle jets before the end of the year, commercial chief Stan Deal told Bloomberg TV at this week’s Paris Air Show. The company is laying the groundwork for a step-up to a pace of 48 jets over time. 

Spirit makes most of the 737 Max fuselage from its home base in Kansas and sends the frames by rail to Seattle-area assembly lines. The single-aisle aircraft provided about 70% of Boeing’s first-quarter revenue, according to George Ferguson, an analyst with Bloomberg Intelligence.

Stay Focused

The vote “represents a material issue for Spirit in the near term,” RBC Capital Markets analyst Ken Herbert said in a client note. With aircraft manufacturers planning to increase production rates, “Spirit is likely to feel increased pressure to get a contract signed as soon as possible.”

Stan Deal said in an internal memo seen by Bloomberg that employees should “stay focused on our task at hand,” and that the company will provide an update once it gains “further insights” from Spirit.

Spirit was carved out of Boeing in 2005. It had reached a tentative deal last week with negotiators from the International Association of Machinists and Aerospace Workers, who recommended members support it. Spirit suspended production and told the 6,000 factory workers not to come to work on Thursday. 

The offer was rejected by 79% of the union members in Wednesday’s vote, and 85% backed a strike. 

“The membership has been heard in this decision,” the union said on its Facebook page. 

In a statement, Spirit said it was disappointed, and that its four-year offer was fair and competitive. Both sides plan to continue meeting. 

Labor Challenges

The walkout is just the latest challenge being thrown at Boeing and its European counterpart, Airbus SE, as they try to get back to pre-pandemic levels of production and beyond. Their supplier systems were laid low by Covid-19, and filling gaps in labor was in focus in Paris, as planemakers strain to meet surging demand for aircraft.

The Wichita complex also makes engine pylons for the Airbus A220 narrowbody and the carbon composite nose section of Boeing’s 787 Dreamliner.  

Manufacturers such as Boeing and Airbus typically stockpile parts ahead of potential labor disruptions, suggesting there’s buffer of time before the shutdown affects output of finished aircraft. 

Over the longer term, Spirit’s shaky finances are a concern. The company required a cash infusion earlier this year from Boeing and other customers.