Boeing Vendor Spirit Faces Work Slowdown as Jet Orders Rise

Spirit AeroSystems Holdings Inc. (SPR) faces a work slowdown over a stalemate in contract talks as the maker of jet fuselages and parts for Boeing Co. (BA) and Airbus SAS seeks to boost output, a union chief said.

“Work-to-rule” campaigns are under way as some of the 3,100 unionized programmers, technicians and engineers do required tasks and nothing more, said Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace. Engineering drawings are being released at only 25 percent of the expected rate, he said.

“It’s not surprising when the company proposes freezing their pay, that you’re going to have some unhappy campers,” Goforth said. “You’re already seeing the effect in the factory. It’s been rather startling.”

Spirit sees “no evidence” that a slowdown is under way, said Ken Evans, a spokesman. At Boeing’s behest, Wichita, Kansas-based Spirit is raising production of fuselages for the best-selling 737 by more than a third in the next two years, along with increasing output on other models.

“We’re at a pause, but we do believe we’ll be headed back to the table” to resume labor talks, Evans said today in an interview.

The contract for 2,300 union-represented workers in the technical and professional unit in Wichita expired in July, and the agreement for 800 engineers is up for renegotiation next year. Goforth said Spirit wants agreements to run about 10 years, mirroring a deal reached in 2010 with the Machinists, up from the typical three years.

Health-Care Costs

Spirit’s proposal to the technical and professional unit would quadruple employees’ health-care costs during that time and cap salaries, and would favor off-site contractors over company employees in the event of layoffs, Goforth said.

Union members rejected a company offer in July, with 97 percent of the vote going against the company, according to the union. Negotiations began in May.

“There is a deal we could see ourselves getting to, but not one that involves pay and benefit cuts,” Goforth said in a telephone interview. “That’s crazy. This is a company that has more orders than they know what to do with.”

Spirit customers are ratcheting up pressure on the supplier’s costs even as they demand higher output, Evans said. The company makes parts for every Boeing model and is working on new jets for Airbus and General Dynamics Corp. (GD)’s Gulfstream in addition to other planemakers.

“Our customers don’t want to pay us anything more than what they’re paying us now,” Evans said. “In many cases our contracts require us to get less per unit when we go faster.”

Capacity Concern

Boeing and Airbus have said suppliers’ capacity has been their main concern as they seek to build more planes, taking output to record levels to meet demand for more fuel-efficient aircraft. If even one supplier can’t keep up, it can halt the whole assembly process.

Spirit was sold by Chicago-based Boeing in 2005 to buyout firm Onex Corp., and the supplier sold shares to the public in 2006. The stock rose 43 cents, or 2.7 percent, to $16.30 in New York Stock Exchange composite trading at 4:15 p.m., and has declined 22 percent this year.

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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