Boeing’s Main 737 Supplier, Union Forge Agreement to End Strike

Spirit AeroSystems Holdings Inc. and leaders of its largest union reached a tentative deal on a second new contract proposal, aiming to end a strike that’s halted production of key parts used in Boeing Co. and Airbus SE jets.

(Bloomberg) — Spirit AeroSystems Holdings Inc. and leaders of its largest union reached a tentative deal on a second new contract proposal, aiming to end a strike that’s halted production of key parts used in Boeing Co. and Airbus SE jets.

The latest terms sweeten management’s previous offer on health insurance and increased wages. The new contract would also limit mandatory overtime, which has been a sticking point for striking workers.

The International Association of Machinists and Aerospace Workers urged rank-and-file members to ratify the four-year package in a June 29 vote. Workers bucked union leaders last week by rejecting an earlier proposal and voting overwhelmingly to strike. 

Spirit shares rose 0.5% at 10:01 a.m. in New York on Wednesday. Boeing advanced 0.8%. 

Ratification of the new offer would allow Spirit to speedily resolve a dispute that’s threatened output of Boeing’s 737 Max, a cash-cow aircraft that’s critical to both Spirit and the planemaker. Management worked to address the priorities of rank-and-file Machinists, Tom Gentile, Spirit’s chief executive officer, said in a statement Tuesday.

“Pressure from Boeing could be contributing to the quick negotiations,” Ken Herbert, an analyst with RBC Capital Markets, said in a research note. While he said union members are likely to support the proposal, Spirit “will work to get a contract in place quickly even if this second offer falls through.”

Work Stopped

Production has been at a standstill at the Wichita, Kansas-based aerospace supplier since about 6,000 Machinists voted to strike on June 22. Cash-strapped Spirit stands to lose about $100 million in revenue for each week of the work stoppage, according to Jefferies analyst Sheila Kahyaoglu.

The most recent proposal addresses several hot-button issues that had inflamed workers. As part of the deal, Spirit would eliminate mandatory overtime on weekends and maintain its existing core insurance plan and prescription drug list. The company is also offering 23.5% in guaranteed wage increases over the term of the contract, including a 9.5% boost to total compensation in the first year.

Spirit, which was spun out of Boeing in 2005, is the world’s largest independent supplier of airplane structures. The company builds about 70% of the airframe for Boeing’s cashcow 737, sending the hulls via rail to its Seattle-area factories. Spirit also manufactures key components for all of Boeing’s 7-series commercial jets, including the 787 Dreamliner, as well as Airbus’s A220.

Read More: Boeing 737 Output at Risk With Key Supplier in Labor Turmoil

The Machinists union has a history of activism in Wichita stemming from the days when Spirit’s members were on the same contract as Boeing’s Seattle-area factory workers. Both sets of IAM members struck for 57 days in 2008, 28 days in 2005 and 69 days in 1995.

The strike vote this month ended 15 years of labor peace for US aerospace manufacturers, and hit just as Boeing is preparing to step up production of its 737 Max. Returning the narrowbody jet to pre-pandemic levels of output is the cornerstone to Chief Executive Officer Dave Calhoun’s target of generating $10 billion in free cash flow by mid-decade and paying down the company’s $55 billion debt.

The workhorse Max is also a critical source of revenue for Spirit. Two rate increases planned for later this year represent the manufacturer’s “primary opportunity to generate incremental cash,” JPMorgan Chase & Co. analyst Seth Seifman wrote in a June 22 report.

(Updates with today’s trading, adds analyst comment)

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