Boeing's largest supplier is laying off a significant number of its employees because of the 737 Max production suspension, APA reports citing CNN.
Spirit AeroSystems (SPR), which makes fuselages for the Max as well as other items for Boeing, announced Friday that it is furloughing approximately 2,800 workers. Shares of the Wichita, Kansas-based company fell more than 1% in trading.
"The difficult decision announced today is a necessary step given the uncertainty related to both the timing for resuming 737 Max production and the overall production levels that can be expected following the production suspension," Spirit AeroSystems CEO Tom Gentile said in a press release.
Boeing (BA) said in December that it was suspending 737 max production for an indefinite period, due to continued uncertainty about when the plane will be allowed to fly again. The company hasn't said how long the production halt will last or at what rate it might resume once the Federal Aviation Administration certifies the jets to fly again.
Spirit believes production will be "lower than previously expected" whenever it resumes. Boeing accounts for 79% of the manufacturer's revenue, according to Spirit's 2019 annual report to the Securities and Exchange Commission. The Max alone represents more than 50% of Spirit's revenue.
Boeing originally cut production of the jets by about 20% in March 2019, following two crashes that killed 346 people. But it continued to buy a full supply of parts and fuselages from Spirit, which has said that said Boeing now has more than 100 of its fuselages awaiting assembly. As a result, Spirit's shutdown is likely to last longer than Boeing's.
Spirit will not be the only supplier to be affected by the jet maker's production halt. Others could announce layoffs or may have done so already without any public statement. And in a ripple effect, suppliers in turn have suppliers of their own who could be forced to lay off staff.
"You are going to see a lot more news stories like the one we are seeing now" with Spirit AeroSystems, the former Chairman of the Council of Economic Advisers Kevin Hassett told CNN on Friday.
"That's because Boeing kept producing the 737 Max throughout last year despite the grounding of the 737 Max. That's not the case anymore. Sadly, tens of thousands of people are probably going to be laid off before this crisis is done," Hassett added.
Friday's layoffs will affect primarily Spirit's Wichita plant, where it has 13,500 employees, representing more than 20% of the workforce. The company also said it will "implement smaller workforce reductions" at plants in Tulsa and McAlester, Oklahoma.
"We continue to work with Boeing to develop a new production schedule for 2020 with an eye toward minimizing disruption, maintaining the stability of our production capabilities, and best positioning Spirit for the future," Gentile said.