Holding Pattern

0

These are anxious days for Jim Eaton, president of Airdrome Holdings LLC, a supplier of high-pressure tube fittings for Boeing Co. commercial jets.


About 15 percent of the Long Beach-based company’s $13 million in annual revenue is derived from Boeing deliveries, and with 18,000 of Boeing’s machinists on strike since Sept. 2 he’s not sure how long the aircraft maker will ask him to continue supplying his product.


Any halt would be a financial hit, but there’s pressure on Eaton not to let Boeing see him sweat.


“I fully expect that if the strike lingers on, we’ll have to stop shipping,” said Eaton, who employs about 80 workers. “Boeing is a company that pays close attention to our financial strength, so it’s a double-edged sword. Something like this could make us look weak in their eyes.”


Eaton is not alone in his concerns. He’s among 93 mostly small manufacturers in Los Angeles County that supply components to Boeing. All could lose a major source of revenue should production of the 737, 777 and other jets remain on hold.


The last machinists’ strike at Boeing in 1995 lasted 69 days, and this one is expected to last at least a month because the company and the International Association of Machinists and Aerospace Workers are so far apart on a new three-year contract, according to industry analysts.


Workers at Boeing plants in Seattle, Wichita, Kan. and Gresham, Ore. walked off after failing to agree with Boeing on a new three-year contract. The two sides are about $1 billion apart in total wages and pension and health packages.


While commercial jet production at Boeing plants has ceased, the Chicago-based aerospace and defense giant has instructed most of its suppliers to continue production and delivery. Boeing wants to ensure that it has enough inventory to ramp up its own production and catch up with orders when the strike is over.


That can only go on for so long, however. At any time, Boeing could order its suppliers to continue production but stop delivery, which would mean subcontractors would have to lay out money for raw materials and labor but not get paid until deliveries resume.


That has already occurred to some suppliers elsewhere in the country, according to the Aerospace Industry Association, a Washington, D.C.-based trade group.


“There will be different effects for different suppliers,” said Boeing Spokesman Chaz Bickers. “Some items might have a longer lead time, some items might be delayed.”



Better prepared


For now, the effects are expected to be muted. The suppliers that survived in the devastated commercial airline industry after the 9/11 terrorist attacks are not dependent on one large customer.


“Many suppliers went out of business, particularly the ones that were dependent on companies like Boeing,” said Bill Lewandowski, vice president of supplier management for the aerospace association. “Those that survived, have in large part because they diversified.”


During the previous Boeing machinists’ strike a decade ago, many suppliers had Boeing as their single customer.


Boeing also has political reasons to continue accepting deliveries, according to Richard Aboulafia, an aerospace analyst at Fairfax, Va.-based research firm Teal Group Inc.


The company doesn’t want an image problem in its labor battle or to incur the wrath of politicians who want to protect jobs and revenues at Boeing suppliers in their territories. That could result in political pressure to reach an unfavorable settlement.


“When other workforces are idled, it looks bad,” Aboulafia said. “Boeing is confident for a settlement, so they don’t want to have their supplies of components cut off, and have their production disrupted. They’re betting on a short strike, even though it seems like it might be a longer one.”


Boeing has benefited from increased commercial jet orders primarily from regional airlines serving the booming Asian countries, and it is in a heated battle with its French Rival Airbus S.A.S. for those orders. That’s giving the union additional leverage in the strike. For the first half of 2005, Boeing had orders for 417 large jets and Airbus had 276.


“They’ve never been stronger. It’s the opposite of the last strike, when the market was soft,” Aboulafia said.


The strike may also give Boeing suppliers the chance to catch up on work that has been backlogged because of the recent surge in orders for commercial jets.


Consider Ely Co., a Torrance manufacturer that employs 33 people making housings for gear boxes for Boeing contractors Moog Inc. and Honeywell International Inc. Up to 70 percent of Ely’s current workload is tied to the contractors.


“Orders are up, so as busy as we are now, I don’t think it will really affect us financially,” said Walther Senff, president of Ely. “It would probably help us catch up on backlogged orders. We have plenty of work to do now.”


Senff estimated that Moog and Honeywell can absorb inventory for about four weeks, based on his order and delivery cycle about the time analysts expect the strike to last. After that, Senff expects even he will be told to stop delivering.


“Eventually, it would slow us down,” Senff said. “With lean manufacturing now, everyone wants to have as little inventory as possible, except for the guy at the bottom, like us. We don’t have any choice.”

No posts to display