Boeing Co.’s largest supplier is racing to avoid a potentially crippling strike, a disruption that would jeopardize the U.S. planemaker’s effort to hike production of its cash-cow 737 jetliners.

Spirit AeroSystems Holdings Inc. is preparing to make a so-called best-and-final offer during the week of June 15 to about 6,000 unionized employees at its Wichita, Kansas home base. Members of the International Association of Machinists and Aerospace Workers plan a June 21 vote on the proposal and, depending on the outcome, could go on strike at midnight on June 24, 2023.

The sides are at loggerheads over wages, mandatory overtime and a management plan to gut traditional healthcare insurance, said Cornell Beard, president of IAM’s District 70, which represents IAM members across Kansas.

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“The company is again telling us what a bad position they’re in,” Beard said in an interview. “Every time there’s a sacrifice to be made, we’re the ones to make it.”

A work stoppage could have far-reaching implications for Boeing and its European rival Airbus SE — also a customer of cash-strapped Spirit — at a time when their factories are straining to keep pace with soaring jet sales. After 15 years of labor peace at aerospace manufacturers in the U.S., investors may be tuning out the risks of a strike, said Kristine Liwag, an analyst with Morgan Stanley.

“This labor agreement is a very large catalyst because the market assumes the contract talks will get settled,” Liwag said in an interview. “Is the market underpricing the risk?”

Spirit, carved out from Boeing in 2005, makes most of the 737 Max jet’s frames in Kansas and sends the fuselages 1,800 miles by rail to Seattle-area assembly lines. The single-aisle aircraft is Boeing’s top seller and provided about 70% of its first-quarter revenue, according to George Ferguson, an analyst with Bloomberg Intelligence. Chief executive officer Dave Calhoun aims to gear up 737 output by 23% to a 38-jet monthly pace by mid-2023.

The Wichita complex also makes engine pylons for the Airbus A220 narrowbody and the carbon composite nose section of Boeing’s 787 Dreamliner. A strike would be “very disruptive to Boeing,” Liwag said.

Customer Support

A resolution also poses risks to Spirit, which needed cash advances of $280 million from its former owner and other customers earlier in 2023. Peace could prove expensive after Lockheed Martin Corp. recently offered Machinists pay hikes of 40% or greater over six years. The collective bargaining sessions are also a bellwether for upcoming talks between Boeing and Seattle-area Machinists in 2024.

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“Spirit continues to bargain in good faith,” the company said in a statement. “Our goal is to provide our IAM-represented employees with a fair and competitive contract.”

Boeing continues to monitor the situation “and support our valued supplier,” it said in an email.

Airbus tracks the financial health of its suppliers and regularly assesses risks to aircraft production rates, the company said, while declining to comment directly on Spirit.

Cash Crunch

Spirit and its largest labor union last held full negotiations in 2010. The company’s finances have deteriorated this decade, and it has stressed its precarious position in communique with workers.

The shares slipped 0.7% at 10:12 a.m. in New York on June 15, 2023. They are up 3.9% in 2023. Boeing was up 0.9%, bringing its year-to-date gains to 15%.

Cash and equivalents have shrunk by more than 75% since 2019 to $567.8 million in March 2023 as Spirit weathered a 737 production halt during the jet’s global grounding, a demand slump tied to COVID-19 and long-term contract losses on the Airbus A220, A350 and Boeing 787 Dreamliner programs.

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One standard tactic to withstand potential labor turmoil is to stockpile inventory. But Arlington, Virginia-based Boeing likely has fewer 737 fuselages available as a result of a vertical-fin defect the two companies disclosed in April 2023. Liwag, the Morgan Stanley analyst, estimates that repairs will be needed for about 40 of the roughly 65 fuselages Boeing had stored as a buffer.

The union is particularly riled by a management proposal to dump longstanding health insurance coverage for health-savings accounts with large deductibles. Workers will vote twice on the same ballot during the week of June 22: a simple majority will determine whether they accept or reject Spirit’s proposal while a strike authorization would require two-thirds support.