WICHITA, Kan.—Moody’s Investors Service announced that it is downgrading the debt rating for Spirit AeroSystems Inc. to junk-bond status after the major supplier of fuselages for Boeing’s troubled 737 Max announced massive layoffs last week.
Monday’s downgrade comes after Spirit announced Friday that it was laying off 2,800 workers in Wichita and that it planned smaller workforce reductions later this month at its plants in Tulsa and McAlester, Oklahoma.
“The downgrade reflects our expectation that Spirits liquidity profile will quickly and materially erode in the absence of mitigating developments that remain largely out of the company’s control,” said Eoin Roche, Moody’s lead analyst for Spirit.
Spirit produced about 70% of the 737 Max, including the fuselage and other major components. Contracts with Boeing for the Max represents more than half of Spirit’s annual income. Spirit halted production of fuselages and other parts for the Max on Jan. 1, after Boeing told Spirit to suspend shipments.
Moody’s said recent events led it to assert that the company’s earnings and cash generating capability had weakened meaningfully relative to historical trends and prior expectations, and would likely remain as such for at least the next two years. It said the layoffs suggest ongoing risk and operational disruption to what is now expected to be a much slower resumption of production.
The layoffs were announced the day after documents became public showing that Boeing employees raised doubts about the safety of the 737 Max, apparently tried to hide problems from federal regulators, and ridiculed those responsible for designing and overseeing the jetliner. The Max was grounded in March following two deadly crashes.
Spirit AeroSystems is the largest employer in Wichita, which bills itself as the “Air Capital of the World” due to a heavy concentration of aerospace manufacturers. More than 40 aerospace companies, most of them in and around Wichita, provide parts and services for the production of the 737 Max.
Kansas Secretary of Labor Delia Garcia on Tuesday released the state’s “Aviation Worker Response” web page offering resources for workers affected by the halt in production. Garcia will be in Wichita on Thursday to listen to concerns and co-ordinate the state’s response efforts out of the city’s Workforce Alliance Center.
“My team will continue to work to connect impacted workers and businesses with the resources they need during this critical time,” Gov. Laura Kelly said in a news release. “This information is an important first step as Secretary Garcia co-ordinates our comprehensive response effort.”