Aviation

CEO says Spirit will cut expenses but not plan layoffs in response to 737 Max issues

‘Max efficiency, max reliability’: How Boeing sold its new 737

Boeing introduced the 737 Max as a reliable fuel- and cost-efficient solution to air travel in the 21st century. After two fatal Max crashes, all of the Max aircraft in the world are believed to have been grounded.
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Boeing introduced the 737 Max as a reliable fuel- and cost-efficient solution to air travel in the 21st century. After two fatal Max crashes, all of the Max aircraft in the world are believed to have been grounded.

Spirit AeroSystems — manufacturer of 70% of the grounded 737 Max plane’s parts, including its fuselage — isn’t planning to lay off employees in the wake of Boeing’s announcement last month that it is slowing production of the troubled airliner.

But it will take other measures to mitigate expected revenue losses connected to a slated production increase that won’t happen as planned.

Spirit President and CEO Tom Gentile told investors Wednesday during the company’s first quarter 2019 earnings conference call that for now Spirit will continue producing 737s at its current rate — 52 shipsets a month. But it is halting plans to up that to 57 per month starting in June.

Maintaining the current production rate means Spirit won’t meet projected revenues for the year.

“We are not planning layoffs at this time,” Gentile said, adding that Spirit is prepared to give Boeing “whatever support they need as they work with regulators around the world to return the Max to service.”

To offset the loss, Gentile said Spirit is “taking immediate actions to reduce expenses” including freezing some hiring, reducing overtime and decreasing its use of contractors.

It also plans to cut discretionary spending, put off any capital improvement project “not an absolute priority for this year,” minimize indirect and non-labor expenses and put a pause on share repurchases.

In December, Spirit announced plans to add 1,400 more jobs in Wichita.

Wednesday, in response to a question from The Eagle, Spirit spokeswoman Keturah Austin said: “We are well on our way to hiring for those positions and still plan to fulfill that commitment.

“While we are not currently hiring for attrition in all roles, we are constantly reviewing our staffing needs and making workforce adjustments to meet customer demand and improve our competitive position for the future.”

Spirit increased production of the 737 from 42 shipsets in 2016 to 52 shipsets last year, and had plans for an additional five per month increase by summer. Shipsets are components related to a specific plane.

But after worldwide groundings of the Max following deadly crashes in Indonesia and Ethiopia, Boeing in April announced that it was temporarily scaling back production to the 2016 rate.

In each of the crashes, preliminary reports say faulty sensor readings erroneously triggered an anti-stall system that pushed the plane’s nose down. Pilots of both planes struggled in vain to regain control over the automated system.

In all 346 people died.

Gentile said Spirit has worked closely with Boeing “to minimize disruptions to Spirit’s operations and supply chain” since the April decision. Last month, Spirit announced that it will continue producing 52 shipsets monthly but will hold the extra planes in storage until Boeing is ready for them.

“We are installing temporary mechanisms at Spirit’s expense to protect the fuselages from inclement weather during storage in Wichita,” Gentile said Wednesday, adding that all other 737 Max parts will be stored indoors at Spirit facilities.

At whatever time Boeing decides to pick up production to 57 aircraft per month, Spirit will continue producing 52 shipsets monthly until it “burns down” what’s in storage, Gentile said.

After that, Spirit will begin producing at the higher rate.

It wasn’t clear Wednesday when that might happen.

Gentile said the “staggered delivery approach” will allow Spirit and its supply base to support Boeing while reducing other costs. The slower production schedule also gives Spirit “more time to stabilize our production system and improve quality and efficiency,” he said.

Other aspects of Spirit’s business “remain strong,” Gentile said.

The company reported first-quarter net income of $163.1 million. It said it had profit of $1.55 per share. Earnings, adjusted for costs related to mergers and acquisitions, were $1.68 per share, surpassing Wall Street’s expectations. Shares have increased 8% in the last 12 months.

Spirit is Wichita’s largest employer with about 12,000 full-time workers. Boeing is its largest customer. Last year, 737 production accounted for 56 percent of Spirit’s revenue.

Contributing: the Associated Press

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