Most of the issuers in the aerospace and defense sector that we rate are not expected to be affected by the machinist strike at Boeing Co., S&P Global Ratings says in a report published today.

Only a handful of the over 40 aerospace and defense companies that we rate in North America could face negative rating implications related to the strike, but no actions are imminent, S&P Global Ratings analyst Jarrett Bilous says in "Most Boeing Co. Suppliers Have Rating Cushion To Absorb Continuing Strike". We forecast those with exposure will generate credit measures that afford sufficient cushion to absorb unexpected weakness in operating results.

Investment-grade issuers face the least exposure and could presumably manage an extended outage with limited difficulty. Boeing will not achieve its planned 737 MAX aircraft production of 38 per month by the end of 2024 due to the strike. It continues to push the goal further into the future. We believe suppliers to the 737 MAX aircraft platform are most exposed, as one would expect. However, Boeing also faces disruptions to other parts of its business--including certain widebody aircraft and defense products--that present possible ramifications for certain suppliers.

The likely duration of an extended strike is uncertain, but see the increasing prospect of a lengthy work stoppage with every passing day. The machinist union is demanding restoration of Boeing's defined benefit pension plan, a factor we believe is more difficult to address than wage increases. In our view, this is a challenge for the company for several reasons, most notably the significant associated costs that we presume would be involved.

Spirit AeroSystems Inc. has the most exposure to Boeing, manufacturing the fuselage for the 737 MAX family and has entered into an agreement to be acquired by Boeing (we expect the transaction to close by mid-2025). Triumph Group Inc. also generates meaningful business from Boeing that predominantly includes highly engineered components. We also believe TransDigm Inc. and Howmet Aerospace Inc. are sensitive to a protracted production delay, albeit to a lesser extent.

None of the rated suppliers to Boeing have publicly commented on potential business impact on their businesses from the strike.. With the exception of Spirit and, to a lesser extent, Triumph, they have well diversified revenue sources that would mitigate impact from the strike. This includes contracts for Boeing aftermarket work and widebody platforms not meaningfully (or at all) affected by the strike. But certain suppliers have cited headwinds related to slower than expected aircraft production by both Boeing and Airbus SE. We could expect a more pronounced refrain across much of the industry if the strike is not resolved soon.