Boeing's plan to increase production of 737 aircraft could be in jeopardy as its major supplier, Spirit AeroSystems Holdings, faces labor unrest. The supplier recently suspended production of fuselage assemblies for the 737 Max after around 6,000 members of the International Association of Machinists and Aerospace Workers rejected a four-year contract offer and voted to strike. Spirit's CEO has now agreed to meet with union leaders again to restart negotiations.
Spirit, which was once part of Boeing, produces most of the 737's frames and delivers them to Boeing's Seattle-area factories. The planemaker has some spare parts on hand, but a production glitch in April that temporarily halted shipments from Spirit means that Boeing may have a smaller buffer available than usual. According to analysts, even a two- to three-week strike could have an impact on Boeing’s 737 output.
Meanwhile, investors have been keeping a close eye on the situation, particularly since the 737 Max contributes roughly 70% of Boeing's first-quarter revenue. Shares in both companies fell after Spirit's work stoppage, with investors concerned about the potential impact on the company's finances as well as Boeing's production plans.
Boeing had aimed to increase production by almost 25% to 38 jets a month by mid-year, and even higher beyond that. Commercial Chief Stan Deal has said that the planemaker is looking at moving to a monthly 737 build rate of 42 jets by year-end. However, the potential for a prolonged strike by Spirit's workers could force Boeing to revise its production goals for the 737.
One potential saving grace for Boeing is the large number of already built 737s that are now being reworked before delivery to customers. Even if production of new planes is forced to halt, there’ll still be work to do at its factories, and Boeing can keep delivering planes. Nonetheless, as even RBC Capital Markets analyst, Ken Herbert, has noted, the rejection of the package by a 79% margin with 85% of workers backing a strike suggests “a clear disconnect” between Machinist leadership and its members. It remains to be seen how the situation will be resolved.