Boeing defense charges present new challenge for suppliers amid Covid-19

5 August 2020 (Last Updated August 5th, 2020 14:40)

Boeing defense charges present new challenge for suppliers amid Covid-19

On the 31 July, Spirit AeroSystems announced further job cuts following the recent production slowdown of the Boeing 737 MAX. Whilst 1,100 jobs are to be cut on commercial programmes, overall headcount is set to reduce by only 450, with employees transitioning to defence programmes.

This reflects a trend among aerospace companies set thus far in the crisis, where companies have relied on defence business due to the depressed and volatile state of the commercial aerospace market. However, Q2 earnings from Boeing indicate that for Spirit AeroSystems, this strategy may be more challenging to maintain.

Harry Boneham, associate analyst at GlobalData, comments: “Some defence programmes are beginning to feel the effects of the Covid-19 pandemic beyond delays related to facility closures, particularly defence programmes derivative of commercial products. Boeing announced in its Q2 earnings release that a $151m charge has been incurred on its KC-46A tanker programme, and attributed this loss to the slowdown of commercial aircraft production. As demand for commercial aircraft has collapsed, the production rate has been cut, and so the cost of producing derivative defence products has increased. These products are the defence platforms most vulnerable to the impact of Covid-19, carrying implications for supply chain partners.

“Many of Spirit AeroSystem’s defence programmes are Boeing commercial aircraft modified for commercial use. These include the P-8 and C-40, which are both modified 737s, and the KC-46, which is a modified 767. Whilst Spirit AeroSystems is involved with other programmes which are solely defence platforms, such as the CH-53K and B-21 Raider, the exposure of its defence business to adapted commercial aircraft renders it vulnerable to cost fluctuations as the Covid-19 pandemic continues.

“Whilst the latest round of job cuts at Spirit AeroSystems have been concentrated on its commercial workforce, with the defence workforce being used to retain skilled workers, if disruption to these derivative defence products continues, cuts to the defence business may be necessary.”