Spirit layoffs could stress Wichita, Sedgwick County finances, Moody’s cautions
One of the world’s top credit rating agencies has issued a report expressing concern about potential stress on Wichita-area governments if Boeing’s troubled 737 Max jetliner doesn’t get back in the sky sooner rather than later.
The Moody’s investment firm report identifies the 2,800 recently announced layoffs at Spirit AeroSystems as a potential catalyst that could cause future financial issues for local government.
“The (Spirit) layoffs are credit negative for the city of Wichita, Sedgwick County and surrounding communities because the workforce reduction threatens to result in weaker retail sales, lowering sales tax revenues that support local government budgets,” the report said. “The reduced work orders and layoffs at Spirit are likely to ripple out to smaller aerospace suppliers in the Wichita area, increasing layoffs in the region.”
Spirit builds the fuselages for the 737 Max, which was grounded worldwide in March after two crashes overseas killed 346 people. The 737 Max represents more than half of Spirit’s business and the company had to cut its workforce until the plane is allowed to fly passengers again.
On Monday, Moody’s downgraded Spirit’s bond rating, although it was careful to point out it wasn’t the company’s fault.
Friday’s report notes that Sedgwick County is the second most aviation-dependent county in the nation, with 32 times as many aviation-related workers as an average county.
Only Boeing’s home county, Snohomish County, Wash., at 39 times the average, is more tied to the aircraft industry, the report said.
While Moody’s has downgraded Spirit debt to junk-bond levels, Friday’s report was carefully worded to avoid saying the rating agency is getting ready to reduce the credit ratings of the city of Wichita and Sedgwick County.
Currently, the county enjoys the highest possible rating from Moody’s, Aaa, while Wichita has the second highest, Aa1.
The outlook on both agencies’ credit ratings remains “stable.” A downgrade in the rating would likely raise the interest rates the two governments would have to pay to borrow money for public projects.
“If it’s a short-term economic slowdown, we don’t think it will be an issue,” said David Jacobson, a vice president in Moody’s Public Finance Group. “But if it goes on for an extended period and nobody else (in aviation) picks up the hiring, that has the potential for outmigration” of aircraft workers.
The report said Wichita and Sedgwick County are well-positioned to weather a short-term crisis because they rely heavily on property taxes, a more stable and predictable source of government revenue than sales tax.
Sales tax collections can dry up quickly as consumers put off big purchases in times of economic stress.
“Both (Wichita and Sedgwick County) also maintain healthy general fund reserves and consistently exhibit conservative and forward-thinking governance and management,” the report said.
Scot Rigby, Wichita’s assistant city manager in charge of development, said Moody’s is just doing its due diligence by issuing a cautionary report.
He said more encouraging news emerged Wednesday at a joint news conference by city and county officials and private-sector groups organizing a coordinated response to Spirit’s troubles.
Rigby said there are still more than 7,000 open jobs in the Wichita region, including 2,000 in the aerospace industry. There’s also a need for substitute teachers in the Wichita school district, which college-educated Spirit employees could tap into as an interim job.
He said the city has met with numerous subcontractors in the Spirit supply chain.
“They recognize in the short-term it might be painful, but they all anticipate that there will be a recovery,” Rigby said.
In the meantime, efforts continue to try to diversify the local economy “so we’ll get even better at weathering these types of blips.”
The county’s chief financial officer, Lindsay Poe Rousseau, said in an e-mail that the Moody’s report is “accurate and fair.”
“Unfortunately, we are dealing with circumstances beyond our control that don’t put us in a position to argue with their assessment,” she said. “The County is part of the coordinated effort to mitigate the impact as much as possible, and we are optimistic that our community can weather this.”
This story was originally published January 19, 2020 at 8:01 AM.
