Boeing’s main 737 supplier, union forge agreement to end strike

Spirit AeroSystems Holdings Inc. and leaders of its largest union reached an agreement on a new contract, aiming to end a strike that’s halted its production and pressured customers Boeing Co. and Airbus SE.

The latest terms sweeten management’s previous offer on health insurance and increased wages. It also includes a limit on mandatory overtime, which had been a sticking point for striking workers.

The International Association of Machinists and Aerospace Workers urged its rank-and-file members to ratify the proposed four-year deal during a vote on June 29. Workers had rejected an earlier agreement, bucking union leaders, then overwhelmingly approved a strike. 

If union members approve the tentative agreement, Spirit would speedily resolve a dispute that’s threatened output of Boeing’s 737 Max, a cashcow aircraft that’s critical to both Spirit and the aircraft maker. Shares of both companies rose after the close of regular trading in New York. 

“We listened closely and worked hard in our talks over the last several days to further understand and address the priorities of our IAM-represented employees,” Tom Gentile, Spirit’s chief executive officer, said in a statement Tuesday.

Production has been at a standstill at the Wichita, Kansas-based aerospace manufacturer since about 6,000 Machinists voted to strike on June 22. Cash-strapped Spirit stands to lose about $100 million in revenue for each week of the work stoppage, according to Jefferies analyst Sheila Kahyaoglu.

This most recent proposal addresses several hot-button issues that had inflamed workers. As part of the deal, Spirit would eliminate mandatory overtime on weekends and maintain its existing core insurance plan and prescription drug list. The company is also offering a 23.5% guaranteed increase in wages over the term of the contract, including a total 9.5% boost to compensation in the first year.

Spirit, which was spun out of Boeing in 2005, is the world’s largest independent supplier of airplane structures. The company builds about 70% of the airframe for Boeing’s cashcow 737, sending the hulls via rail to its Seattle-area factories. It also manufactures key components for all of Boeing’s 7-series commercial jets, including the 787 Dreamliner, as well as Airbus’s A220.

The Machinists union has a history of activism in Wichita stemming from the days when Spirit’s members were on the same contract as Boeing’s Seattle-area factory workers. Both sets of IAM members struck for 57 days in 2008, 28 days in 2005 and 69 days in 1995.

The strike vote this month ended 15 years of labor peace for US aerospace manufacturers, and hit just as Boeing is preparing to step up production of its 737 Max. Returning the narrowbody jet to pre-pandemic levels is the cornerstone to Chief Executive Officer Dave Calhoun’s target of generating $10 billion in free cash flow by mid-decade and paying down the company’s $55 billion debt.

The workhorse Max is also a critical source of revenue for Spirit. Two rate increases planned for later this year represent the manufacturer’s “primary opportunity to generate incremental cash,” JPMorgan Chase & Co. analyst Seth Seifman wrote in a June 22 report.