Aerospace suppliers face bailout dilemma over job cuts

Sekisui Chemical Co

02/04/2020 13:19

By Allison Lampert and Tracy Rucinski
    MONTREAL/CHICAGO, April 2 (Reuters) - Aerospace suppliers
are drawing up plans to lay off workers as coronavirus
quarantines cripple their cash balances - but bailout conditions
and fears of losing critical skilled labor are forcing
managements to juggle survival and future growth.
    The coronavirus epidemic, which has surpassed 878,000 known
cases globally, has battered aviation as airlines ground planes
everywhere, sending ripples through a global supply chain.
    "With the airlines not flying, they're not ordering new
planes; they're not taking delivery of planes that are coming
off the line. They're not servicing the planes, so even the
aftermarket has dried up," Eric Fanning, chief executive of the
U.S. Aerospace Industries Association, told Reuters.
    Many suppliers - especially those who make structural parts
and lack a recurring market for repairs and replacements, unlike
makers of limited-life components - are having to face hard
choices over furloughing staff as they try to conserve cash.
    "Their workforce is their crown jewel. Aerospace and defense
have a critical problem finding the right workers for all the
jobs that they have," Fanning said.
    Sekisui Aerospace, a Seattle-based subsidiary of Japan's
Sekisui Chemical  4204.T  which makes composite parts for Boeing
Co  BA.N  and Airbus SE  AIR.PA , plans to pay employees through
April 8 after closing for a compulsory lockdown. It's not yet
clear what Sekisui will do after that.
    Fearing skill shortages, companies across the  U.S. supply
chain are weighing whether to apply for loans under a $2.3
trillion government coronavirus aid package approved last week.
    To qualify, mid-sized companies must plan to restore at
least 90% of their pre-crisis workforce within four months of
the U.S. government declaring the health emergency is over.
    But that condition assumes a relatively sharp bounceback
that airlines say is far from certain - even allowing for a
demand boost from the sheer scale of the stimulus.
    
    REVISING PLANS
    Companies that three weeks ago were looking at cutting
headcount to adapt to a 30-50% drop in demand "are now going
back and revising their plans again to meet the terms of the
loans," said Regina Lee of consultancy AlixPartners.
    The International Air Transport Association, representing
airlines, warned on Tuesday the crisis could last until the
fourth quarter and that any rebound would be short-lived if
there was a new winter wave of coronavirus.  urn:newsml:reuters.com:*:nL8N2BO59C
    "Before the crisis we were in hiring mode. Now we have
stopped all hiring," said Martin Brassard, chief executive of   
Montreal-based Heroux-Devtek  HRX.TO , which makes landing gear.
    It has already laid off 85 workers in the Montreal area
because of confinement rules, but hopes to use its backlog of
defense orders to avoid further cuts. 
    Information Engineering Group, a nearby company that makes 
software to manage airport executive lounges, has laid off some
workers but wants to be positioned for an eventual recovery.
    "We want to make sure the talent we have is not lost," said
managing director Michael Di Corpo. "We are trying to weigh that
balance as we move on."
    Still uncertain is to what extent Boeing will itself apply
for government help and how much aid it would funnel to
suppliers, who are already reeling from the 737 MAX grounding.
    "We have got to help them through it, and that's what will
really help on the recovery side of this," Chief Financial
Officer Greg Smith said in a Mar 24 interview.
    Planemakers can offers cash advances, loans or continued
orders. But experts say such help does not always trickle down
to so-called Tier-3 firms deep in the supply chain.
    "If your engine has 1,000 parts and you have 999 of those
parts you don't have an engine that flies," said AIA's Fanning.

 (Additional reporting By  Eric M. Johnson in Seattle, Editing
by Tim Hepher and Chizu Nomiyama)
 ((Allison.Lampert@thomsonreuters.com; 514-796-4212; Reuters
Messaging: allison.lampert.reuters.com@reuters.net))