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Strike could force suppliers to cut operations, lay off

workers

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Boeing's ( BA ) supply chain already stressed by

quality-and-safety

crisis

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Shares of Boeing ( BA ) suppliers fell

By Allison Lampert

Oct 25 (Reuters) - Striking workers' rejection of

planemaker Boeing's ( BA ) latest contract offer has created a

fresh threat to operations at aerospace suppliers such as

family-run Independent Forge.

If the strike by more than 33,000 U.S. Boeing ( BA ) workers persists

another month, the Orange County, California supplier might need

to cut its operations from five to three days a week to save

money and retain workers, president Andrew Flores said.

While Independent laid off a few employees already, letting more

go is not an appealing option, he said. The 22 workers who

remain are critical for the company, especially when the strike

eventually ends and demand for its aluminum aircraft parts

rebounds.

"They are the backbone of our shop," Flores said this week.

"Their knowledge, I can't replace that."

Wednesday's vote by 64% of Boeing's ( BA ) West Coast factory workers

against the company's latest contract offer, further idling

assembly for nearly all of the planemaker's commercial jets, has

created a fresh test for suppliers such as Independent, which

opened in 1975.

Boeing's ( BA ) vast global network of suppliers that produce parts

from sprawling modern factories or tiny garage workshops, was

already stressed by the company's quality-and-safety crisis,

which began in January after a mid-air panel blow-out on a new

737 MAX.

Demand for parts has dropped, hitting suppliers after they spent

heavily to meet renewed demand for planes in the post-pandemic

era.

How small suppliers such as Independent navigate the strike,

which began on Sept. 13, is expected to affect Boeing's ( BA ) future

ability to bring its plane production back online.

MORE JOB CUTS?

Five Boeing ( BA ) suppliers interviewed by Reuters this week said

continuation of the strike would cause them to furlough workers,

freeze investment, or consider halting production.

Boeing ( BA ) declined comment.

Seattle-area supplier Pathfinder, which runs a project to

attract young recruits to aerospace and trains them alongside

its skilled workers, will likely need to lay off more employees,

CEO Dave Trader said.

Pathfinder, which let go one-quarter of its 54 workers last

month, will also need to send more of its aerospace students

back to their high schools, instead of training them in the

company's factories, Trader said.

Suppliers on a regular call on Thursday with Boeing ( BA )

supply-chain executives said they expect the strike will

continue for weeks, one participant told Reuters.

About 60% of the 2.21 million Americans who work in the

aerospace industry have jobs directly linked to the supply

chain, according to the U.S. industry group Aerospace Industries

Association.

Those suppliers' decisions to reduce staffing could create a

vicious cycle, as they will put added strain on Boeing's ( BA ) efforts

to restore and eventually increase 737 MAX output above a

regulator-imposed cap of 38 after its factories re-open,

analysts say.

"Once we get back, we have the task of restarting the

factories and the supply chain, and it's much harder to turn

this on than it is to turn it off," CEO Kelly Ortberg told an

analyst call on Wednesday.

"The longer it goes on, the more it could trickle back into

the supply chain and cause delays there," Southwest Airlines ( LUV )

Chief Operating Officer Andrew Watterson said of the

strike on Thursday.

Shares of Boeing ( BA ) suppliers fell on Thursday. Howmet

lost 2%. Honeywell ( HON ) and Spirit AeroSystems ( SPR ) fell

5% and 3%, respectively, following weak results.

Spirit Aero, Boeing's ( BA ) key supplier, which has already announced

the furlough of 700 workers on the 767 and 777 widebody programs

for 21 days, has warned it would implement layoffs should the

strike continue past November.

"It's starting up the supply chain that is likely to be the

biggest worry, especially if they have taken action to cut

workers due to a lack of Boeing ( BA ) orders," Vertical Research

Partners analyst Rob Stallard said by email.

A strained supply chain, Spirit Aero's challenges and increased

regulatory oversight from the Federal Aviation Administration

over MAX production, means it could take up to a year from the

strike's end to get 737 output back to the 38-per-month rate,

Stallard said.