Analysts: Boeing cost-cutting could take a while to reach Spirit

Additional cost-cutting by Boeing’s commercial airplanes unit could be felt by its suppliers, including Wichita-based Spirit AeroSystems.

But if it is felt, it may not be soon, experts said Wednesday.

Boeing officials confirmed plans to cut about 4,000 jobs in its commercial airplanes unit by midyear. It’s Boeing’s way to compete on airplane price against rival Airbus.

Boeing is eliminating those jobs partly through 1,600 workers who elected to leave the company under a voluntary program announced last month. Another 2,400 positions will be left vacant or will be shed through attrition.

Boeing also is flattening its management structure to create a “more streamlined and nimble organization that can respond to marketplace demands,” Boeing spokesman Marc Birtel said in an e-mail.

The company also is looking beyond labor for savings. Boeing is renegotiating supplier contracts, consolidating programs, slashing business travel and working to boost productivity, quality and reduce excess inventory, Birtel said. The number of job cuts could ultimately be affected by the success of those initiatives.

Boeing’s cost-cutting will almost certainly trickle down to Spirit, Wichita’s largest private employer. It manufactures major parts for all Boeing airliners, including 70 percent of its best-selling 737 narrowbody airliner.

“If they say the thing we want to work on is price, the obvious way to go is after suppliers,” Adam Pilarski, senior vice president at aviation consultancy Avitas, said Wednesday. “It doesn’t take a genius to figure out that they’ll be asked to contribute.”

The hold-up to affecting Spirit would be its contracts with Boeing, Pilarski said.

“In the short term it’s very difficult to change the cost structure, even agreements with Spirit or whoever,” he said. “They have a bunch of contracts that are multiyear contracts. You can’t come in and say, ‘I want to change it tomorrow.’

“And because of this I don’t see this, for the short-term, as a major problem for Spirit.”

A Spirit spokesman said the company would not comment about what Boeing is doing for cost cutting.

Richard Aboulafia, vice president for analysis at the Teal Group, said Spirit and other suppliers for years have been under pricing pressure from Boeing and thinks the most recent action is “more of the same.”

“That’s the funny thing,” he said. “Over the past few years Boeing has been applying heavy pressure to suppliers (on pricing). … I’m not sure just how much more pain Boeing can apply.”

Boeing earned record revenue of $96.1 billion in 2015 and delivered 762 commercial planes, the most in its history. But its adjusted profit fell 13 percent to $7.74 billion from a year earlier. Contributing to the decline: accounting losses related to the development of KC-46 tanker and declining 747 programs.

While analysts had expected aircraft deliveries to rise from a record 762 in 2015, in January Boeing indicated it would hand over about 20 fewer jets due to production changes for its largest and smallest aircraft.

The forecast reflects internal production issues at Boeing and not broader pressures on the aerospace sector, new Chief Executive Officer Dennis Muilenburg said in January.

This story was originally published March 30, 2016 at 7:24 PM with the headline "Analysts: Boeing cost-cutting could take a while to reach Spirit."