Boeing Production Cuts Could Cause Financial Woes For Suppliers

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News surfaced today which indicates that Boeing has requested that supplier Spirit AeroSystems reduce 2020’s 737 production to just 72 shipsets, from 125 planned earlier. The news came via Reuters. The Kansas-based manufacturer issued a public statement earlier this month warning of an impending reduction but was unable to disclose the number at the time.

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Spirit AeroSystems had already laid off 900 workers as a result of the production stop. Photo: Getty Images

Slowing the supply chain

On June 4th, 2020, Spirit AeroSystems had received a letter from Boeing directing Spirit to pause additional work on four 737 MAX shipsets. It had also asked that Spirit avoid starting production on sixteen 737 MAX shipsets to be delivered in 2020, until otherwise directed by Boeing.

The reason for this, stated Spirit, was to “support Boeing’s alignment of near-term delivery schedules to its customers’ needs in light of COVID-19’s impact on air travel and airline operations”, additionally, the move would mitigate the expenditure of potential unnecessary production costs.

Spirit AeroSystems manufactures the 737 MAX’s fuselage, thrust reversers, engine pylons and wing components.

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737 MAX components make their way across the country from suppliers like Spirit AeroSystems, to Boeing’s assembly facilities in Washington State. Photo: Getty Images

72 from 125 from 216

The previous plan for 2020 737 MAX production was 125 shipsets. However, due to the June 4th letter, Spirit AeroSystems was anticipating that the number would be brought down. It’s initial estimation pegged a reduction of at least 20. This latest report indicates that number appears to be a reduction of 53, down to a target-delivery of 72.

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According to Reuters, earlier this year, Spirit and Boeing had reached a deal to make 216 shipsets in 2020. In May, that number was cut down to 125 shipsets due to the coronavirus-induced collapse of the air travel industry. Now, the new delivery target of 72 means a cut of two-thirds of the original 216.

Although a fully independent corporation of its own, Spirit works closely with Boeing on a number of projects and earns a large portion of its revenue from that relationship. It’s no surprise then that this cut has had a major impact on Spirit’s operations and financial health, with Spirit forced to cut thousands of jobs and reduce its quarterly dividend by 90%.

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Aircraft have been piling up at Boeing storage facilities. Photo: Getty Images

Statement from Boeing

Simple Flying reached out to Boeing for a statement regarding this news. The company responded, telling us that this is a difficult time for the industry and that Boeing recognizes the challenges facing its suppliers, its customers, and its employees.

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“To reflect the slower ramp[-up], and in light of Spirit AeroSystems’ accumulated inventory, we’re working closely with Spirit to adjust delivery schedules and rate profiles as appropriate. We value our suppliers and their continued partnership, and we will work closely with them to manage risk and support their long term health and ability to enable a seamless production ramp-up.”

Boeing says that it will continue working with Spirit, and with all of its suppliers, to address hardships and manage risk during this time.

According to CareerOneStop, Sprit AeroSystems and Spirit AeroSystems Holdings are listed as the largest and third-largest employers in the state of Kansas, respectively. The regional economic impact will be difficult as the full effects of this pandemic unfold over the coming months.

If you work in aerospace manufacturing, let us know how this crisis has affected you by leaving a comment below.

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