Spirit AeroSystems, a leading aerostructures provider and the supplier responsible for a majority of the Boeing 737 airframe, told union workers in Wichita not to report for work starting with the first shift June 22.
The announcement came after unionized workers there authorized a strike starting June 24 and following their rejection of the Tier 1 aerostructure leader’s last and best contract offer. Around 6,000 members of the International Association of Machinists and Aerospace Workers (IAM) District 70, Local 839, were represented by the vote, with results announced late June 21. Around 79% voted to reject Spirit’s contract with 85% formally approving a strike.
“We are disappointed that our employees represented by the IAM rejected our four-year contract offer and voted to strike,” Spirit said in a statement released hours after results were revealed. “We believe that our fair and competitive offer recognizes the contributions of our employees and ensures we can successfully meet increasing demand for aircraft from our customers.
“We know that no one wins in a work stoppage; however, we respect the rights of our represented employees,” Spirit’s statement continued. “Despite this setback, we are not distracted from the task at hand. We look forward to continued meetings with IAM leadership.”
Industry experts and financial analysts that cover Boeing, Spirit and the aerospace industry—many of whom were at the Paris Air Show this week—described the looming strike as an unpleasant surprise with the potential to derail the 737 and possibly other programs. One said the news rolled through the airshow’s professional audience “like a bomb” in its waning hours.
A prolonged strike could be a proverbial nightmare for the industry in general and Boeing and Spirit in particular, due to Spirit’s pole position in the Western commercial aircraft manufacturing ecosystem.
“We believe this represents a material issue for Spirit in the near term,” said RBC Capital Markets analyst Ken Herbert, a longtime aerospace supplier base expert. “We believe Boeing and Airbus are likely to be impacted by any further delays at Spirit’s facility. With increased production rates planned across both Boeing and Airbus, Spirit is likely to feel increased pressure to get a contract signed as soon as possible.”
Analyst Cai von Rumohr, another longtime industry expert, and his team at TD Cowen said any strike of even 2-3 weeks would start to affect the 737 program. “Boeing has a buffer stock of 737 fuselages; but it’s unclear if they are of the configurations that Boeing wants for its final assembly plans,” they noted.
The terms of Spirit’s last offer already were considered steep but necessary, analysts said, as Spirit, Airbus and Boeing would all want to avoid a strike while they struggle to raise monthly production rates of new airliners. RBC’s Herbert said the last offer could have led to a 3% hit to Spirit’s margins over its proposed four-year lifespan. The terms were believed to be a key reason Spirit recently changed its overall forecast to Wall Street for 2023 from breakeven cashflow to a cash burn.
Spirit had offered a 16% pay hike over four years—6%, 3%, 3%, and 4%—with a $7,500 signing bonus, cost of living adjustment, and annual one-time bonuses for a total of up to 34% over the years. The union’s negotiating team recommended its members vote for the package.
“The pay offer was in line with recent contracts at Boeing-St. Louis and elsewhere,” Rumohr’s team said.
But according to local Wichita news reports, union members remained disappointed with increased co-pays in their health care plan and Spirit’s ability to require a six-day work week.
There may also be lingering resentment of prolonged, pre-pandemic labor disagreements, which the union hinted at in its own announcement.
“After 13 years without a fully negotiated accord and years of working to keep Spirit AeroSystems a player in the game, approximately 6,000 members of the International Association of Machinists and Aerospace Workers (IAM) District 70, Local 839 have voted to reject Spirit’s last, best and final offer,” the union announced late June 21.
“Most of our members have concluded that the company’s offer is unacceptable,” the statement said. “IAM District 70 and Local 839 will regroup and begin planning the following steps to bring the company back to the table.”
The current contract expires at midnight June 23.
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