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Exclusive-Spirit AeroSystems limits overtime and hiring as Boeing 737 output drops

Published 04/12/2024, 03:48 PM
Updated 04/12/2024, 05:26 PM
© Reuters. FILE PHOTO: The headquarters of Spirit AeroSystems Holdings Inc, is seen in Wichita, Kansas, U.S. December 17, 2019. REUTERS/Nick Oxford/File Photo
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By Allison Lampert

(Reuters) -Boeing's key supplier Spirit AeroSystems (NYSE:SPR) is limiting overtime and hiring as production declines due to lower output of 737 MAX jets, Spirit told Reuters on Friday.

Boeing (NYSE:BA)'s MAX jetliner production has fallen sharply in recent weeks as U.S. regulators step up factory checks and workers slow the assembly line outside Seattle to complete outstanding work. Boeing's deliveries dropped by half in March from a year ago as it deals with a sprawling crisis triggered by the Jan. 5 Alaska Airlines midair panel blowout.

The slowdown is spilling over to Spirit, the struggling industry supplier Boeing spun off in 2005, which makes about 70% of the 737. Boeing is now in talks to acquire the company.

"When I walk the shop floors things have slowed down," said Cornell Beard, president of the Wichita, Kansas, union district which represents Spirit Aero workers.

Beard said employees are expected to raise concerns about potential layoffs at an internal union gathering on Saturday, adding the company cut overtime last week. While Spirit has not announced layoffs, some employees are nervous and are catching up on work they were behind on due to slower assembly demands.

"We're just hanging on," he said.

Spirit has a requirements contract with Boeing for the 737 MAX program and the U.S. planemaker can reduce the purchase volume at any time, according to a filing.

Spirit AeroSystems is "aligning our production to support our customer's rate profile," spokesperson Joe Buccino told Reuters by email. That includes in the near-term "limiting overtime as well as hiring for specific roles, including contractors."

Analysts and Reuters interviews with suppliers show Boeing is largely continuing to take deliveries equivalent to a production rate of 38 jets a month, the cap imposed by the Federal Aviation Administration (FAA) following the blowout, even though its monthly output is well below that level.

While the decline in Boeing's MAX output has raised uncertainty and concern among suppliers, it is not yet clear how the move will affect the planemaker's broader supply chain.

Boeing said it cannot comment due to the quiet period ahead of its April 24 quarterly earnings.

AeroDynamic supply chain advisor Glenn McDonald said Boeing's goal to reduce so-called traveled or pending work should make output more stable in the future.

© Reuters. FILE PHOTO: A Boeing 737 MAX-10 lands over the Spirit AeroSystems logo during a flying display at the 54th International Paris Air Show at Le Bourget Airport near Paris, France, June 22, 2023. REUTERS/Benoit Tessier/File Photo

"The big unknown is how long the supplier rate will stay at 38 if Boeing is not able to fix their issues on the production line and increase the actual delivery rate," he said.

Spirit has not reported an annual profit since 2020 following two fatal 737 MAX crashes and the pandemic-induced slump in travel that hit other Boeing suppliers.

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