Several aerospace manufacturing industry representatives and observers here say they’re seeing moderate declines in production following Boeing Co.’s halt of its 737 MAX assembly, but some worry they could see increased pressure if the shutdown lasts past June.
Boeing stopped producing the latest generation of 737 narrowbody airliners this month. The 737 MAX has been grounded since last spring, following two crashes of nearly new planes that killed 346 people.
The shutdown is reverberating through the company’s vast network of suppliers, forcing some of them to scale back production and lay off workers, and Spokane-area manufacturers are starting to feel the negative impact, says Mark Norton, board chairman of the Inland Northwest Aerospace Consortium, an alliance of regional aerospace manufacturers.
“With the MAX, there are some effects now, but I think they’ve been pretty minimal for our area,” Norton says. “But the trickle effect, if this persists beyond June, I think could cause a bit more.”
Parts for the MAX are purchased from over 600 companies. They range from major corporations such as General Electric Co., which supplies the engines for the airplanes, to smaller manufacturers that produce lighting systems and seats.
The Spokane region has more than 120 companies involved in the aerospace industry that employ over 8,000 people , according to Advantage Spokane, Greater Spokane Inc.’s economic development website. A diagram produced by INWAC shows at least 40 of those companies are Boeing suppliers, although it doesn’t show how many companies are directly impacted by the 737 MAX grounding and production shutdown.
Suppliers in the Inland Northwest mostly fall into the Tier 2 and 3 levels of the supply chain, meaning that they supply Tier 1 suppliers with subassembly parts and tend to be more diverse in the industries they serve, says Norton.
The state Employment Security Department has programs to support suppliers, and “there’s a few people that have applied for help, but you’re not seeing anything on a game-changing scale at the moment,” contends Norton. “In our particular area, what we’re seeing is this influx of new business in the aerospace market in general, and it’s kind of offsetting that impact.”
Tier 1 suppliers in the Midwest will feel most of the pressure, Norton contends, because they’re responsible for much larger components of the plane.
One such supplier, Wichita, Kansas-based Spirit AeroSystems, an $8 billion company that manufactures the fuselage, thrust reversers, engine pylons, and wing components for the MAX, announced earlier this month that it planned to lay off roughly 2,800 employees at its Wichita facility due to the MAX production suspension and ongoing uncertainty regarding how quickly production will resume.
The 737 MAX aircraft components had represented more than 50% of Spirit’s annual revenue, according to a December press release, while sales for all Boeing aircraft represented about 80% of the company’s overall annual revenue.
David Leach, director of business development for Post Falls-based ATC Manufacturing, says the thermoplastic composite manufacturing company has been feeling a slight impact to its operations since Boeing halted production on the MAX.
Parts for the MAX represent less than 5% of the total business at ATC, Leach says.
“The supply chain has been cut off, so we’ve been put on indefinite hold for the 737 applications we do have,” he says, adding, “We’re probably fortunate that we’re not very dependent on the 737, so the immediate impact is relatively small for us.”
The company currently has no plans to lay off any of its roughly 150 employees, he says. Instead, those who had been working on MAX applications have been reassigned to other projects.
While Leach declines to disclose exactly how much of the company’s revenue is dependent on Boeing, he says “a large proportion of our output goes to Boeing aircraft.” The company also produces parts for the larger 777X, which completed its maiden test flight on Saturday, and the midsize widebody 787, which has been in service since 2011.
Leach says quite a few of the raw materials suppliers that ATC purchases from are feeling a bigger impact.
“(They’re) taking a pretty big hit at the minute,” he says, adding that ATC has cut back on purchasing raw materials specifically for the MAX. “We have some existing commitments, but we’ve basically zeroed out the future demand for that.”
Rick Taylor, vice president of Liberty Lake-based Altek Inc., says business at the custom injection molding company is down about 7% compared to last year, and the company is currently running at about 80% capacity.
With skilled labor in the industry being in such short supply, Taylor says it’s important to the company that it retain its roughly 200 employees, and currently has no plans to lay off anyone.
“It’s hard to find skilled people, so we invest a lot in our staff for training and education,” he says. “We want to retain those folks. At the same time, we’re not sitting on our laurels waiting for that plane to be released again. There’s other things that we’re doing to try to supplement the business.”
Some of those things include investing in new technologies and ramping up development in the medical and high-end instrumentation industries and focusing more on infrastructure, he says.
Taylor adds that Boeing has reached out to the company directly and has established weekly meetings to keep the company apprised of any updates.
“They gave us a personal phone call to ensure us that this will be over sometime this year,” says Taylor. “They want to know firsthand if we’re going to be suffering any layoffs as a result of the MAX being grounded.”
He adds that Boeing has provided suppliers with two different potential ramp-up schedules.
“They’re not sure which one is going to be put into effect yet, but both of them look promising,” he says.
Adam Kress, spokesman for Charlotte, North Carolina-based Honeywell Aerospace, which has a facility in Spokane Valley, cited the company’s third-quarter conference call in which the CFO Greg Lewis said the Honeywell doesn’t anticipate Boeing delays will have a significant impact to the company.
Effective Jan. 24, Honeywell closed its Renton, Washington, facility and laid off 82 workers, according to the state’s Worker Adjustment and Retraining Notice database. The company closed the office to move its repair and overhaul operations to Olathe, Kansas, the Puget Sound Business Journal reported. Some of the jobs moved to Honeywell’s Redmond office.
Robin Toth, director of aerospace for the Washington state Department of Commerce, says the state Employment Security Department has stepped up to assist suppliers through its SharedWork program.
“We’ve been watching it ever since the grounding and talking to companies across the state, ensuring that they have the right connections should they need them,” Toth says. “We don’t take the production halt lightly; we know that the 737 production line is deeply integrated into our aerospace supply chain.”
Diversification among lower-tier suppliers has helped mitigate the impacts of the 737 MAX shutdown by allowing companies to pick up the slack by working with other industries, she says.
“We believe that in the lower tiers they’d begun to diversify a number of years ago, and that many of them will be able to leverage other airplane programs and other original equipment manufacturers that they have in their portfolios,” Toth says.
The grounding of the MAX initially cost Boeing $2 billion a month, according to a report by investment analysts at J.P. Morgan. Even after this month’s production shutdown, the MAX program is expected to cost Boeing $1 billion a month in workforce and supplier costs, the report says.
The 737 MAX went into service in mid-2017. The aircraft, which is based on earlier 737 designs, has more fuel-efficient engines and aerodynamic airframe and wing improvements, enabling it to fly farther and use less fuel compared with its predecessors.
Boeing released a statement this month estimating that the 737 MAX will be cleared to fly again in mid-2020.
Toth adds, “It’s entirely in the hands of the Boeing Company and the FAA. We don’t know how long that will take. It sounds like that’s further in the year, so we’re prepared right now to help the companies that need it now.”
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