Spirit AeroSystems is lining up aircraft fuselages like giant shrink-wrapped goldfish until Boeing solves its problems with the 737 MAX and ramps up production again, the company’s chief executive said Thursday.
Spirit’s president and CEO Tom Gentile said his company’s stock price has declined by 20 percent since March, when aviation authorities around the world grounded the planes after two crashes that killed 346 people.
“It’s clear this is going to be a longer-term impact than everybody first thought,” he said. “We’re now six months into it and still the Max is not back into service.”
He said Boeing is testing a solution to the software glitch blamed for the crashes and hopes to have the groundings lifted around the end of the year.
Boeing and its suppliers, including Spirit, had been planning to increase 737 production from 52 to 57 planes a month to meet growing demand.
Once the 737 Max in the sky again, Gentile is predicting robust growth will resume.
Airlines are in a period of record profits because of an overall increase in air travel and because they’re doing a better job of filling their planes.
Because of that, “There’s been an incredible surge in orders,” for aircraft with more than 150 seats, he said.
“Today Boeing and Airbus have a backlog of (orders for) 12,500 aircraft worth $2 trillion and it represents almost eight years of production,” he said. “At Spirit, our backlog is about $48 billion, which is almost seven years of production for us.”
After the 737 Max crisis hit, Boeing reduced its production to 42 completed planes a month. But Spirit is still building 52 fuselages a month, he said.
“What we agreed with Boeing was that we would stay at 52, because for us to go down, it meant that it would take us a very long time to come back,” Gentile said.
The extra fuselages are being stored at Air Capital Flight Line, an office and hangar park adjacent to McConnell Air Force Base that used to be part of the once sprawling Boeing presence in Wichita.
“What we do is we put the fuselages, after we’ve finished producing them, on a flatbed truck, wheel them across Oliver Street by our plant into a hangar called “Bunny Wash,” named after a 1950s car wash, he said.
“We wrap them in three layers: an Acetate (plastic) layer, then Styrofoam, and then we put an orange concrete tarpaulin on top of it,” Gentile said. Concrete tarpaulins are thick blankets used to cover concrete in the curing process.
“They look a little bit like goldfish,” Gentile said of the wrapped fuselages. “The eye there (near the front of the fuselage) is a fitting where the crane grabs it to lift it up.”
As of today, 65 fuselages are stored and the number is growing, he said.
The plan is for Boeing to increase production to 52 a month when the 737 Max is flying again, and eventually carry through with the original plan to increase to 57.
When that increase occurs, Spirit will stay at 52 until the extra fuselages are delivered to Boeing. At five a month, that will take at least 13 months to catch up, Gentile said.
Gentile provided that update during the Kansas Economic Outlook Conference, hosted annually by the Wichita State University Center for Economic Development and Business Research.
Earlier in the conference, center director Jeremy Hill briefed the crowd of more than 700 on the state’s and local economic outlook for 2020.
Overall, Hill projected a .6 percent increase in Kansas jobs, but cautioned that trade issues, including the Trump administration’s tariff policies, could derail that quickly.
Hill said the range of possible outcomes has widened since last year when he was certain the economy would grow.
“It is very possible we can grow stronger (than .6 percent), but it is also possible we could go down to zero growth,” he said.
Farming is especially sensitive to trade war concerns, he said.
“When you look at agriculture, you look at our commodities and you look at the soybean contracts, we’re seeing all those contracts go to other countries like Brazil,” Hill said.
He said that drives down prices that farmers get for their crops.
“This is the wrong timing for something like that in Kansas,” he said. “Farmers are already struggling. We’re one of the highest in the nation for bankruptcies.”
But while farming is the most visibly affected sector in the state, manufacturing, which has been performing well, is also pulling back from international trade because of the trouble and risk involved when governments engage in trade warfare, Hill said.
“This is like giving us self-induced asthma,” he said. “It’s just really making it hard for the companies to breathe . . . we’re not really certain about how to engage the (global) economy.”
On a bright note for Kansas workers, Hill said he expects wages to keep rising in Kansas as companies have to compete in a tight labor market for employers.
“I think we should still have that competition, that fierce competition, to get those wages up,” he said.
On the darker side, the forecast for retail sales growth is zero, he said.
“Actually, I think it should be a little higher, but our (computer) model must be reading something into it,” he said.
Taxable retail sales have dropped in Kansas for four straight years, according to charts attached to the presentation.
Hill said despite national and international recession concerns, he doesn’t see that happening any time soon.
“Recession is inevitable, it will happen at some point,” he said. “We have all these uncertainties, (but) I think we understand them pretty well and I don’t think they’re going to put us in a recession right yet. But I could easily be wrong.”
“It could be all of them affecting our economy and that could put us into recession, so I want to put a little bit of caution out there. But I’m remaining pretty optimistic over the overall economy.”