The bankruptcy case of TECT Aerospace this week exposed the extreme financial pressure that many Boeing suppliers in Washington state suffer from.
TECT attributed its collapse to “catastrophic financial losses resulting from the cessation of production of 737 MAX, followed by the impact of COVID-19 on industrial production rates.”
Is this a sign of more bankruptcy և sales of catastrophic assets to come to the sector?
“I think there’s more,” said Bild Alderman, of Alderman & Co. An investment bank that specializes in aerospace mergers and acquisitions.
“If the US federal government does not provide more liquidity in the supply chain, if there is no major increase in aircraft production in the near future, which I think none of us expects, then more TECTs should happen,” he said.
In contrast, Emily Whitman, chief executive of the Aerospace Futures Alliance, an industry lobbyist in Washington state, is optimistic that the second round of federal support last month will resume for many of the astronaut suppliers.
“I hope TECT will be one of the last names we hear with a big cut,” Whitman said. “It makes sense at the moment if you can access it
The second PPP loan or parallel assistance program for the US aerospace industry, the companies that still exist will be here when the market recovers. ”
Boeing supplies to supplier
Headquartered in Wichita, TECT manufactures sophisticated aircraft components – assemblies used by pilots in flight control, fuselages, interior design, doors, wings, landing gear, bases, and grenade launchers.
In January, TECT abruptly closed its Kent facilities. In the wake of the bankruptcy in Kansas վեր Everett’s two additional manufacturing facilities directly supplied by Boeing հիմնական its first major suppliers are located in the cutting block. TECT is trying to sell all three.
At the same time, these three plants continue to operate with Boeing funding to ensure that they continue to supply spare parts.
“We do not anticipate any disruption in our production,” said Boeing spokeswoman Essica Koval.
The holding companies that make up TECT also have factories in Nashville, Tenn, the United Kingdom and Mexico that do not affect bankruptcy.
The situation at TECT got much worse when, before the crisis, Boeing began to put strong pressure on lower parts prices.
Boeing demanded an annual price reduction of 10% to 15% from all its suppliers, promising to do so as jet production rates increased. Many suppliers have borrowed heavily to invest in new equipment to meet expected production growth.
Reducing their margins, raising debts, justifying the MAX due to the epidemic, and then wider cuts in production caused a shocking financial blow.
The Delaware Chapter 11 case documents show that the company was already close to a maximum loan agreement with its bank loan by December 2019, when Boeing stopped production of the MAX. This stopped the revenue of TECT, of which more than a third was intended for MAX parts.
The epidemic then reduced demand for most of it. The last nail in the coffin was the decision of Spirit AeroSystems (Canada), Boich, a major first-class supplier in late December 2020, to terminate its contract with TECT.
In August 2020, Boeing backed TECT with a total down payment of more than $ 17 million. In February, when the bankruptcy resumed, Boeing took further action to prevent the collapse of TECT և closing by taking over the TECT bank loan agreement, to which TECT owes $ 41.9 million.
Boeing then provided a further $ 13 million to TECT to keep the doors open.
TECT’s total debt is nearly $ 98 million, of which $ 59 million is owed to Boeing.
It is now Boeing’s urgency to help find Everett և a Kansas plant buyer to minimize cost loss և to continue production.
The industry is under stress
The same pressures that toppled TECT have led to layoffs and shutdowns for other Washington state aerospace suppliers.
Last year, Safran Cabin announced 314 layoffs at its in-house plant in Bellingham and another 85 layoffs at facilities in New York, Marysville.
Hexcel, which makes composite parts, announced 128 layoffs in Burlington and 160 in Kent.
And Triumph announced this year that it would close its Spokane plant, which manufactures aircraft floor panels and water pipes, with a permanent loss of 136 jobs.
The newly enacted US Rescue Act of 2021 offers at least some companies a helping hand.
It extends wage support to small business airlines by the end of September, including $ 3 billion in wage support grants, which will cover up to 25% of the small aviation industry workforce.
That, plus the rise in domestic air traffic as more people get vaccinated and confidence begins to return, has raised some optimism that the expected recovery in aviation may come sooner than previously thought, said Robin Thoth, director of aerospace at Governor Insley’s office. :
“Airlines bring back fragile pilots, flight attendants and maintenance people. Americans do it, as does Southwest, JetBlue,
“Alaska, Delta,” Toth said. “It means that the need for aircraft maintenance, repair and overhaul will continue, so it is very useful.”
However, Alderman said that “the federal government can not stimulate the economy forever.”
Unlike Boeing, which provided money to TECT before it became clear that it could not be repaid, the government lent free loans to many companies.
US domestic leisure travel looks set to return, Alderman said, adding that he expects a rapid return to demand for refurbished airlines’ jet fuel, ramp services and components.
But international business trips are unlikely to resume as quickly, so he does not expect Boeing’s demand for broadband aircraft to return any time soon.
“The collapse of the industry has been delayed because of the actions of our federal government,” Alderman said. But what happens after September?
The state of the aerospace industry will remain uncertain for the next year.
“Is the federal government going to provide more free money that should not be returned?” And will the market recover too quickly? ” Alderman asked. “If both are missing, the supply chain must be much more stressed.”