The first big ripple effects of Boeing shutting down its 737 MAX assembly line in Renton came Friday as Spirit AeroSystems of Wichita, Kansas, said it will suspend production of 737 MAX fuselages on Jan. 1, and United Airlines removed the MAX from its schedule until early June.
The move by Spirit, the largest employer in the biggest city in Kansas, shows the immediate knock-on effect to the MAX supply chain, which threatens jobs across the country and internationally.
While Boeing and Spirit have the financial resources to manage through delays to the MAX return, smaller suppliers to both companies — who are attempting to hold onto skilled workers in a tight labor market — may not, said Richard Aboulafia, an aircraft industry analyst at the Teal Group. Yet 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.”
United’s announcement that it will pull MAX flights out of its plans until June 4 reveals the collapse of confidence in Boeing’s ability to recover quickly from the ongoing crisis.
Southwest and American Airlines had already pushed the MAX out of their flight schedules until early April. United postponing it to June means the carrier is bracing for an impact on travel through the busy spring break and right up to the start of its summer peak season.
“By moving the return to service date back more than just a month — as we have done previously throughout 2019 — it allows us to have more certainty by providing our customers and our operation a firmer and more definitive timeline,” United said via email.
Spirit employs more than 13,000 workers in Wichita and around 1,300 in Tulsa, Oklahoma. There was no immediate indication of whether the halt in production will bring layoffs.
However, because revenue from the 737 program generates more than half of Spirit’s annual revenue, layoffs are clearly a possibility. Spirit said it is “evaluating all potential actions to align its cost base with lower production levels expected in 2020.”
Kansas Gov. Laura Kelly said she may apply the state’s shared-work program that helps companies avoid layoffs . The money for the benefits comes from the same fund that pays benefits to unemployed workers and is financed by a tax paid by employers.
Boeing announced Monday it will avoid layoffs in Renton “at this time,” by redeploying the roughly 3,000 employees who work directly on the 737 assembly lines and redirecting the work of the roughly 9,000 others at the Renton site.
Spirit faces a similar dilemma. It will want to retain as much of the workforce as possible to make a production restart smoother, but the cash drain may make that difficult.
“Decisions will be guided by a focus on what is best for the long-term interests of Spirit’s stockholders and other stakeholders, including employees,” Spirit said.
Making those decisions more difficult, there’s no timetable for restarting 737 fuselage production.
Boeing will no longer speculate on when that could happen, after Federal Aviation Administration (FAA) boss Steve Dickson last week cautioned Boeing CEO Dennis Muilenburg about making public statements that suggested an unrealistic schedule for the MAX’s return to service.
That leaves the schedule entirely in the hands of the FAA. The new target for providing clearance for a return to service is mid-February, officials say. If that were to slide out some more, Boeing might have to reassess the question of layoffs in Renton.
For now, though, no one can provide a definite timeline for the temporary suspension to end either in Renton or in Wichita.
“Spirit will continue to communicate with Boeing regarding the timetable for resuming production,” the company said.
Spirit made the decision to halt production after Boeing had directed it to stop the assembled fuselage deliveries that are sent by train from Wichita to Renton.
Soon after the MAX was grounded in March, Boeing slowed production from 52 jets per month to 42 per month. But Spirit maintained its rate at 52 fuselages per month to keep production running smoothly, hoping that the slowdown would lift in a matter of months.
So even as more than 400 finished MAXs piled up undelivered, put into storage in Washington state, Spirit also started accumulating undelivered fuselages.
There are already 100 MAX fuselages sitting outside the Spirit plant in Wichita, wrapped in orange covers to protect them from the elements. With those already stacked up, Boeing’s instructions to halt all deliveries left Spirit little choice but to suspend production.
For the airlines, the difficulty is in planning flight schedules without knowing when they will have the planes they had expected from Boeing. Losing patience with month-to-month revamps of the schedule, United decided to kick it out three months.
“We are continuing to work through the schedule to try and swap and upgauge aircraft to mitigate the disruption caused by the grounding of the MAX,” United said Friday. “We continue to automatically book affected customers on alternate flights. If we are unable to place them on a different flight, we will proactively reach out to try and offer other options.”
United said it expects to have to cancel more than 13,800 flights for the months of December through to June 4. This points to a steeply mounting compensation claim against Boeing.
Boeing stock fell more than 1.6%, to $328, in Friday trading.
Information from the Associated Press is included in this report.