Aerospace Suppliers Brace for Hard Landing

A United Airlines jet is worked on at Boeing’s Renton, Wash., assembly plant.

Photo: Stephen Brashear/Getty Images

Companies that make parts for Boeing Co. BA -1.73% and Airbus SE EADSY 1.16% jets, and provide airlines with everything from engine spares to window shades, are shrinking rapidly in the wake of the pandemic-driven travel downturn.

The Precision Castparts unit of Berkshire Hathaway Inc. BRK.B 0.44% this week became the latest supplier to flag huge job cuts as the maker of aircraft-engine parts said it had shed 10,000 staff—30% of its workforce—since the start of the year.

Warren Buffett’s investment vehicle took a $10 billion write-down on its 2015 acquisition, highlighting how the crisis gripping the airline industry is expected to linger. The world’s two biggest plane makers signaled to suppliers that they plan to lower jet production for several years.

U.S. aerospace manufacturers have already shed more than 100,000 jobs since the start of the year, according to Labor Department data and regulatory filings, with the pandemic adding to existing pressures from the sharply reduced production of the still-grounded Boeing 737 MAX jet. Sector employment had climbed to almost a million at the end of last year and fell to 925,000 by June 30. Job cuts have continued to mount in recent weeks.

The biggest supplier on the MAX program, Spirit AeroSystems Holdings Inc., is cutting 8,000 jobs, around 40% of its commercial aerospace workforce. General Electric Co. is shedding 13,000 from its aviation unit, and other big suppliers such as Raytheon Technologies Corp., Howmet Aerospace Inc. and France’s Safran SA have disclosed cuts in recent weeks.

“We have received more production schedule changes this year than I think we’ve seen in the last five years,” said Spirit Chief Financial Officer Mark Suchinski on a recent earnings call.

In addition to the MAX, the supply chain is taking other hits. The overall production of new jets has declined, and the big drop in flying—a third of the global fleet remains grounded—has reduced demand for spares and improvements such as new seats. The reduced workload comes as companies had invested in new equipment and hiring to support higher jet production and the steady rise in airline passengers, only for the pandemic to render their business plans redundant.

Boeing sits atop a chain of more than 16,000 suppliers, many shared with Airbus and defense contractors that produce parts such as fasteners and circuit boards.

Chicago-based Boeing is forecast to produce around 240 planes this year, two-thirds lower than in 2019, and has twice this year reduced the guidance given to suppliers for output of the MAX. It delivered just four jetliners in July and is producing only a dozen MAX aircraft a month, down two-thirds from a year ago. Airbus is cutting production by a third.

Chinese employees with the fuselage of an Airbus A220 aircraft at a factory in Shenyang.

Photo: Agence France-Presse/Getty Images

“We’ve got to size the business and take the tough actions,” Boeing Chief Financial Officer Greg Smith said in an interview last month.

Before the pandemic, Boeing was supporting smaller suppliers by ordering more parts than it needed and stockpiling them ahead of a planned increase in MAX production. That acceleration has failed to materialize. While Boeing is paying suppliers more quickly, it has slowed orders. Raytheon won’t start shipping parts for new MAX jets until the second half of next year.

“Production rate downturns are more traumatic than people think,” said Kevin Michaels, managing director of consultant AeroDynamic Advisory LLC, which works with suppliers. He expects the new production rates outlined by Boeing and Airbus to start forcing some smaller suppliers later this year to cut back, or even exit commercial aerospace in favor of more military work.

Aerospace suppliers typically provide parts and materials for commercial and defense customers, and the impact of the airlines crisis has been mitigated in part by the Pentagon. It used federal stimulus funding to send cash to smaller companies by accelerating contracts and payments to big defense contractors.

The most immediate financial challenge for suppliers is on the so-called aftermarket, sales of spares and maintenance services to airlines that are typically the most profitable business for aerospace companies. New parts are often sold at cost or at a loss, with companies recouping their investment on replacement sales over many years.

The Precision Castparts booth during Berkshire Hathaway’s annual shareholders meeting in 2016.

Photo: Daniel Acker/Bloomberg News

While flying levels have recovered from their low in April, the recovery remains sporadic, and carriers have slashed spending on aftermarket purchases. Global airline traffic remains around 50% below prepandemic levels, according to data provider OAG Aviation Worldwide Ltd. United Airlines Holdings Inc. UAL -2.35% said its maintenance spending in the June quarter was down more than 70% from a year ago.

That has translated into fewer visits to engine-repair shops as planes sit idle, while airlines have also canceled or deferred plans to refresh older planes. Safran, which coproduces engines for the MAX with GE and is one of the biggest players in the aftermarket, said its commercial sales fell 66% last quarter.

“We have a concern regarding the future of some of our suppliers and subcontractors because they are in crisis, too,” Safran Chief Executive Philippe Petitcolin said on an investor call last week.

France has unveiled an aid package for its aerospace suppliers, and the looming challenge for U.S. companies has triggered calls from the Aerospace Industries Association for more federal aid to stem the job cuts and sustain an industrial base that also supports the military.

A $17 billion Treasury fund originally aimed at providing Boeing and GE with funds to flow down to smaller suppliers has failed to attract much interest from the industry, with companies finding the proposed terms too onerous.

As the coronavirus pandemic rocks the aviation industry, two industry giants are fighting to protect their legacies. WSJ’s Jaden Urbi explains what Boeing and Airbus are doing to survive this unprecedented crisis—and how it could reshape the future of aviation. Photo Composite: George Downs

Write to Doug Cameron at [email protected]

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