Date: 30 June 2020
Dive Brief :
The declining demand for new aircraft in the struggling airline industry is the second blow to Spirit AeroSystems in less than a year. The first came after Boeing's decision to temporarily stop production of the 737 Max after the model was grounded following two deadly crashes that killed a total of 346 people. The 737 Max production accounts for more than 50% of Spirit's annual revenue, the company explained earlier this year.
Boeing's decision to temporarily stop production of the model at the beginning of the year led Spirit AeroSystems to lay off 2,800 employees at its Wichita, Kansas facility. Layoffs have since grown to 3,200 employees, according to the company's most recent earnings. The most recent production schedule means six aircraft will be built every month in a production system built to handle 57 per month, according to a research note from UBS. Spirit delivered 606 shipsets in 2019, according to a note from Jefferies cited by Reuters. Spirit AeroSystems CEO Tom Gentile and other executives went to Seattle this week to talk with Boeing about production plans and the possibility of financial assistance from the buyer, according to Reuters. Spirit AeroSystems has also been in talks with its lenders and "intends to work with them expeditiously to obtain appropriate relief from its covenants," it said in financial filings.
"The B737 MAX grounding coupled with the COVID-19 pandemic is a challenging, dynamic and evolving situation for Spirit. During this time, Spirit plans to work with Boeing to manage the B737 production system and supply chain," Spirit AeroSystems said in its SEC filing.
"We continue to take full advantage of this period of reduced production to implement initiatives that are harder to achieve at full run rates in order to improve quality and efficiency," Gentile said during the company's earnings call in May when it still expected to deliver 125 737 MAX shipsets for the year. "These initiatives include optimizing product flows, streamlining our factories, accelerating automation and digitization projects, and completing the transition to our Global Digital Logistics Center."
In April, air passenger demand posted its largest decline on record due to the coronavirus pandemic and the financial impact during the first quarter "reached the level of industry-wide loss recorded for the full year of 2008, during the Global Financial Crisis," according to the International Air Transport Association (IATA). This leaves airlines will less money to invest in new planes.
That same month, when an analyst asked Boeing CEO David Calhoun what percentage of the company's backlog would be canceled, he said the company's new, lower production rates were a result of discussions with customers, but did not provide a number.
source : supplychaindive.com