What happened
Shares of Spirit AeroSystems Holdings (SPR 3.63%) opened Monday down 10% after the aerospace component supplier announced plans to lay off 1,450 workers. Spirit is a major supplier to Boeing (BA 5.93%) and Airbus (EADSY 0.98%), and with airplane production rates scheduled to fall in the quarters to come, Spirit's business is going to take a hit as well.
So what
Spirit, a onetime Boeing subsidiary that makes fuselages and other large components for commercial and military aircraft, has seen its shares fall 70% so far in 2020 on concerns that the COVID-19 pandemic will force airlines to retrench, slowing commercial aircraft sales for years to come. It appears those fears were well founded, as Boeing and Airbus are both planning to make fewer planes in the future.
Fewer planes mean fewer parts needed, and Spirit over the weekend announced it will reduce employment at its factories that support commercial airplane manufacturing.
Image source: Getty Images.
"Our actions follow reduced demand from our customers, who have lowered production rates as demand for new airplanes declines due to the impact of COVID-19," CEO Tom Gentile said in a statement. "We are focused on ensuring Spirit AeroSystems remains a healthy business and emerges from this crisis with a bright future."
Spirit has offered voluntary layoffs to union workers at its Wichita, Kansas, plant as part of a plan to eliminate 1,450 hourly and salaried positions at the site. The company will also make smaller reductions at other sites, with plans to be announced in the weeks to come.
The company said that its defense work will not be affected by the reductions, and that some workers currently supporting commercial programs could be transferred to defense platforms.
Now what
With the cuts, Spirit is confirming what the markets had already assumed: The commercial aerospace downturn is here, and it is unlikely to be quick. It could take airlines three years or longer to return to pre-pandemic flight schedules.
The company is relatively well positioned to survive the downturn, raising $1.2 billion in fresh liquidity in April. In the statement, Gentile said, "I remain confident in the future of the aviation industry and believe in our ability as a company to weather this pandemic and emerge stronger."
He's likely correct, but Spirit shares are unlikely to push substantially higher until there are clear signs of a recovery. Investors on Monday appeared to have little desire to ride out the storm.
