Spirit To Halt Production On Troubled 737 Max Program
Spirit AeroSystems said Friday it will suspend production of the 737 Max beginning Jan. 1.
The company says Boeing ordered Spirit to halt all 737 deliveries. The 737 Max was grounded in March following two fatal crashes overseas.
Spirit did not say how the production suspension would affect its workforce of more than 13,000 people. The company is Wichita's largest private employer.
Spirit makes more than 70 percent of the 737 at its south Wichita plant.
"Because revenue from 737 aircraft components represents more than 50 percent of Spirit's annual revenue, this suspension will have an adverse impact on Spirit's business, financial condition, results of operations, and cash flows," the company said in a news release.
Spirit says it is continuing to evaluate its next steps to align its costs with the lower production levels.
Steve Stotts, director of taxation at the Kansas Department of Revenue, said potential layoffs or shorter work weeks at Spirit would have a major impact on the state's income tax collections. Spirit’s workforce accounts for about 1 percent of the state’s non-farm employment.
"Once we know for sure what they’re planning on doing, we can watch and see if there’s any decline in the growth or anything like that,” Stotts said, “and then alert the powers that be in the legislature and the governor’s office on what we’re seeing."
Gov. Laura Kelly said earlier this week that the state is prepared to help Spirit, including using unemployment funds to help pay workers. She directed Secretary of Labor Delia Garcia and Secretary of Commerce David Toland to make state resources available as needed to the company.
The problems with the 737 don’t stop at Spirit and Boeing. Smaller companies who supply them — and who are attempting to hold onto skilled workers in a tight labor market — also face turmoil, said Richard Aboulafia, an aircraft industry analyst at the Teal Group. If companies along the supply chain lose workers, it could slow progress when production eventually resumes.
“If they’re not building, how do they get paid? And if they don’t get paid, how do they pay their workers? How do they remain in place?” Aboulafia asked. “It’s this trickle-down effect that’s most concerning, and the biggest question is, you just don’t know how deep that goes.”
Boeing announced Monday that it was suspending production of the 737 at its Renton, Wash., plant. It has continued to produce the plane while waiting for the Federal Aviation Administration to give permission for it to fly again.
Boeing said it does not plan to lay off workers in Washington who work on the 737.
The continuing delay in returning the 737 to service caused United Airlines on Friday to pull the plane from its flight schedule until June. United said the airline expects to cancel thousands of flights in coming months as a result of the grounding.
United had previously planned to return the plane to its flight schedule in March.
Southwest Airlines, which was counting on the Max to update its fleet, has said it will add the plane back into its schedule in April. American Airlines announced the same expectation last week.
Southwest – which flies an all-Boeing fleet – has been canceling about 175 flights each weekday and is among the hardest hit by the Max grounding. The airline had 34 Max planes when they were grounded and expected more to be delivered this year.
“The system seems to be hit with a touch of paralysis, and it’s all very strange,” Aboulafia said of the FAA’s slow pace to return to the 737 to service.
Technical fixes to the Max should have taken just a couple of months, but political and regulatory pressure have contributed delays, he added.
"Because of the pressure, they’ve gone over everything with a fine-tooth comb,” he said. “Everything has to be investigated and gone over and over again and again.”
The Associated Press contributed to this report.