January 10, 2020 / 3:38 PM / 14 days ago

Boeing supplier Spirit to lay off more than 20% of workforce in Kansas

SEATTLE (Reuters) - Boeing Co’s (BA.N) biggest supplier, Spirit AeroSystems Holdings Inc (SPR.N), said on Friday it plans to lay off more than 20% of the workforce at its Wichita-Kansas base as it grapples with halted production and uncertainty over when 737 MAX jets will return to service.

FILE PHOTO: Airplane fuselages bound for Boeing's 737 Max production facility sit in storage behind Spirit AeroSystems Holdings Inc headquarters, in Wichita, Kansas, U.S. December 17, 2019. REUTERS/Nick Oxford/File Photo

The layoffs, amounting to more than 15% of the company’s entire workforce, mark the first major 737 MAX-related disruption at one of the world’s largest aerospace companies, and signals more pain ahead as the 737 MAX’s safety ban ripples across the program’s U.S.-centric supply chain.

Cuts of this magnitude also present a major roadblock for Boeing’s longer-term plan to ramp up MAX production once it is cleared to resume commercial flights.

Spirit shares closed 4.2% lower on the news, first reported by Reuters.

Chief Executive Officer Tom Gentile said the layoffs would affect 2,800 workers at Spirit’s marquee facility in Wichita, with the possibility of more to follow based on what final production rates are agreed with Boeing.

Spirit has some 13,000 employees in Wichita, out of 18,000 worldwide.

Spirit builds the fuselage, thrust reversers, engine pylons and wing components on the 737 MAX - with the program accounting for more than 50% of its more than $7 billion annual revenue, according to its website.

“Spirit has not yet received notice from Boeing on when MAX production will restart or what production rates will be when it does,” Gentile said in a memo to employees.

“We are taking these actions to align our cost structure to what we expect will be lower production rates than Spirit’s 2019 levels.”

He added that “additional workforce actions” were possible.

Previously Boeing’s best-selling plane, the 737 MAX has been grounded since March, following two fatal crashes in five months that killed 346 people, hurling the world’s largest planemaker into crisis.

The news of the layoffs came just days after Spirit said it would offer voluntary layoffs to some employees.

“We are continuing to meet with the company to find ways to lessen the impact of this situation as much as possible,” said Cornell Beard, president of machinists union IAM District 70.

Kansas Labor Secretary Delia Garcia said she was working to bring together available resources to assist impacted workers.

FILE PHOTO: Airplane fuselages bound for Boeing's 737 Max production facility sit in storage at their top supplier, Spirit AeroSystems Holdings Inc, in Wichita, Kansas, U.S. December 17, 2019. REUTERS/Nick Oxford/File Photo

Reuters reported last month that furloughs were likely in Kansas if Boeing failed to compensate Spirit for built and stored fuselages after a planned 737 production halt starting this month.

The employees affected include a mix of hourly and salaried employees and managers, though some 737 MAX employees could be transferred to other programs, Gentile said.

Moody’s warned on Friday that suppliers would be challenged to manage their expense base given the uncertainty over 737 MAX production. With a 4,500 order backlog, the MAX was expected to “support the aerospace supply chain for many years to come,” it said in a note.

Reporting by Eric M. Johnson in Seattle; Additional reporting by Allison Lampert in Montreal and Tracy Rucinski in Chicago; Editing by Bernard Orr and Daniel Wallis

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