Jan. 27, 2020, 2:24 p.m. EST

Arconic may cut jobs because of MAX grounding

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By Bob Tita

Arconic Inc. said it expected to lose $400 million in sales and could cut jobs this year as a result of Boeing Co.'s halted production of the 737 MAX.

Chief Executive John Plant said on an investor call Monday that uncertainty over MAX production is the biggest challenge facing Arconic in 2020, complicating plans to split the Pittsburgh-based company into one business focused on aerospace parts and another focused on aluminum rolling.

Shares rose 4.7% to $30.48 in early afternoon trading after the company reported higher profit for the latest quarter compared with a year earlier.

Like Arconic, 600 major MAX suppliers and hundreds of smaller companies are weighing their ability to bear higher costs during the suspension and whether to cut expenses by laying off staff who could be tough to rehire when output resumes. Boeing is expected to provide an update on its production plans when it reports earnings on Wednesday. The MAX has been grounded since March after two fatal crashes, and the aerospace giant halted its production this month.

Spirit AeroSystems Holdings Inc., the biggest MAX supplier, has said it plans to lay off 2,800 staff. Mr. Plant said Arconic is being cautious with workforce reductions until the company has more clarity later in the year about the duration of the production outage. Shares in Spirit were down 1% Monday afternoon, and shares in Boeing were down 1.2%.

Mr. Plant said Arconic is considering a mix of staff cuts, extended vacations and changes in shift patterns. While business for Airbus SE jetliners and military aircraft is strong, he said it was tough to switch workers to alternative products.

"If we're clear that production is going to become much more healthy in 2021, then that's going to affect our views about labor," he said.

He declined to provide specifics about Arconic's discussions with Boeing about the production outage and wouldn't say how much revenue Arconic derives from each new MAX. Jefferies Research Services recently pegged the amount at $1.7 million a plane.

Many airlines have removed the plane from schedules through at least early June. United Airlines Holdings Inc. said recently it didn't plan to fly the plane this summer.

Arconic said it still expects to complete its break into two companies by April 1, separating the aerospace components and aluminum-rolling businesses into separate entities.

The aluminum-rolling business, which will be spun off tax-free to Arconic shareholders as a new company, will operate as Arconic Corp. The remaining business lines, which include aerospace components, forgings, commercial truck wheels and other engineered products, will operate as Howmet Aerospace Inc. Arconic hasn't said who will be CEO of Howmet. Veteran company executive Timothy Myers will be executive of the new Arconic Corp. He has been president of the rolling business.

Higher operating margins helped Arconic's businesses overcome weak revenue during the quarter ended Dec. 31. In the aerospace unit, profit increased 32% from last year as revenue rose 1%. The rolling business posted a 61% increase in income, offsetting a 5% reduction in revenue that was partially attributed to lower sales to the automotive industry as a result of the General Motors Co. strike during the fall.

Overall for the quarter, Arconic's profit increased 42% to $309 million, compared with $218 million in the prior year. Excluding one-time and special items, which included a tax gain, profit was 53 cents a share. Revenue fell 2% to $3.4 billion. Analysts expected adjusted earnings of 54 cents a share and revenue of $3.47 billion.

Write to Bob Tita at robert.tita@wsj.com and Doug Cameron at doug.cameron@wsj.com

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