Spirit AeroSystems to halt work at Wichita plant as union votes to strike

By Valerie Insinna, Abinaya V and Shivansh Tiwary

PARIS (Reuters) -Spirit AeroSystems will suspend factory production on Thursday at its plant in Wichita, Kansas, the company said, after workers rejected a proposed four-year deal and announced a strike to begin on June 24.

Spirit is one of the most consequential suppliers for aerospace heavyweights Boeing (NYSE:) and Airbus. The Wichita site makes the entire fuselage for Boeing’s bestselling 737 MAX narrowbody jet and the forward sections for most of its other aircraft, as well as pylons for the Airbus A220.

Shares of Spirit tumbled about 9% in afternoon trade, while those of Boeing fell 2.4%. Paris-listed shares of Airbus shed 1.7%.

A prolonged work stoppage at Spirit could have ripple effects for the aircraft makers it supplies, eventually forcing them to slow or stop jetliner assembly at a time when both Airbus and Boeing are ramping up production.

“It’s not a welcome development,” said Richard Aboulafia, an aerospace analyst with AeroDynamic Advisories.

“I think the general feeling is that (Spirit) had it under control with what appeared to be a reasonable agreement,” he said. But after more than a decade of cost pressure on the aerospace industry, “labor feels like they have some power.”

Spirit will suspend factory production prior to the expiration of its contract with the International Association of Machinists and Aerospace Workers (IAM) on June 24, but will continue to pay employees, it said.

“Despite this setback, we are not distracted from the task at hand. We look forward to continued meetings with IAM leadership,” Spirit said.

Although IAM and Spirit reached a tentative contract agreement last week, 79% of workers voted to reject the contract and 85% voted to strike, the union said on Thursday.

IAM added it would regroup and begin planning “the following steps to bring the company back to the table.”

About 55% of Spirit’s U.S. workers were covered by the agreement, which will expire this month. Spirit had 12,735 workers in its six U.S. facilities, of which 11,000 were located in Wichita.

Boeing said it continued to monitor the situation and support Spirit.

Stan Deal, the head of Boeing Commercial Airplanes business, encouraged employees to “stay focused on our task at hand, which is to continue to build and deliver the finest airplanes in the world,” in an internal email seen by Reuters.

The planemaker has been working to boost output of its 737 MAX jets to 38 per month from the current level of 31, and 787 jets to five per month from the present level of four this year.

“(The upcoming strike) threatens Boeing’s pace of production on these programs,” J.P.Morgan analyst Seth Seifman said in a note.

Boeing has more than 100 MAX planes in its inventory, so it could shift workers from production to modifying inventory jets to keep deliveries flowing in the event of a stop at its production facility in Renton, Washington.

Airbus, while not commenting on the work stoppage itself, said it conducted regular assessments with suppliers to mitigate potential risks to production.

The strike is yet another setback for Spirit, which has been grappling with a recent quality issue on 737 fuselages and is experiencing cash flow pressures.

In May, Boeing CEO Dave Calhoun said it would be difficult to make contingency plans for a strike at Spirit.

“Even if they tried to get ahead of it by virtue of their current production, that will be measured in weeks not in months, so we’re supporting them in every way possible to get to a constructive answer,” he said.