NBAA: Wichita remains core as Spirit AeroSystems plots new strategy

Wichita
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Wichita has been home to Spirit AeroSystems since 1927, two years before Lloyd Stearman’s biplane factory became part of Boeing. Over those 85 years, the facility has grown into one of the largest production complexes in the aerospace industry, measuring about 3.22km (2.00 miles) wide and 1.60km long over 243 hectares (600 acres) of southwest Wichita. It is here that Spirit AeroSystems transforms raw sheet metal and – increasingly, these days – graphite-epoxy resin into full-scale assemblies that are shipped by train or by 747 DreamLifter to Boeing’s final assembly centres in the Seattle suburbs of Renton and Everett.

The company now faces an uncertain period as it unravels an undisciplined diversification and expansion strategy adopted eight years ago.
As a new leadership at Spirit plots a fresh course, it is already clear that the sprawling Wichita complex is more important to the company’s future than ever.

“There are very few places in the world [like this],” says David Coleal, executive vice-president and general manager at Spirit AeroSystems. “You just can’t go set up a 42-a-month [production rate] on the 737 line. And this has taken decades to establish, but we have to continue to
drive the efficiency and the cost every there’s a rate increase.”

It seemed only a few years ago that the Kansas-based supplier was drifting away from Wichita. When new projects required new capital investment, such as the Airbus A350 XWB Section 15 fuselage section, Spirit went to greenfield sites in other states or even other countries, rather than make the Wichita complex any larger.

“Right now Kinston [North Carolina] is primarily an Airbus location. Wichita is largely based for the Boeing programmes. I don’t see that changing dramatically. I can’t predict the future, but as we go into these higher rates you’re installing capital,” Coleal says. “So it’s logical to kind of progress that production system because the workforce, the talent, is all based around those programmes here.”

On paper, the strategy for Spirit in 2005, when it emerged as a standalone company after seven decades as a Boeing division was simple: diversify and grow.

Boeing’s lack of interest in the aerostructures business by the middle of the last decade could be twisted to become an advantage for the newly independent company. Here, after all, was one of the most experienced and sophisticated aerostructures suppliers in the world, and now it could work for other manufacturers and expand beyond commercial airliners.

So Spirit moved quickly and aggressively. After securing major work packages on the Boeing 787 and 747-8, the supplier was also selected by Airbus to supply the wing and section 15 fuselage of the A350 XWB. In 2008, it plunged deep into what was then a thriving market for business jets, winning positions on the short-lived Cessna Columbus, Gulfstream G280 and G650. It even broke into military helicopters with a deal to supply cockpit and cabin structures for the Sikorsky CH-53K.

After seven decades locked into a single supply chain, Spirit was suddenly engaged in seven overlapping development programmes for five different manufacturers.

Its manufacturing base grew from two locations in Kansas and two in Oklahoma that were inherited from Boeing to a global operation with new plants in France, Malaysia, North Carolina and – courtesy of an acquisition from BAE Systems – Scotland.

Over the past 18 months, however, the sudden growth spurt has come back to haunt the company. What was the Wichita aerospace cluster’s economic anchor during the post-2008 business jet downturn, which slashed order backlogs for Cessna and Learjet and forced the former Hawker Beechcraft into bankruptcy, is now reorganising under new leadership.

Spirit has reported more than $1 billion in combined forward losses in the past six quarters alone, with the majority of the charges assigned to the company’s work on the G650 and G280 programmes.

The red ink prompted the resignation of Jeff Turner, the founding chief executive and architect of the diversification strategy.

Turner was replaced in April by Larry Lawson, who previously led Lockheed Martin’s Aeronautics division and the F-35 programme. In less than six months, Lawson has worked to stem the losses, announcing plans to divest the operations in Oklahoma, which includes the G280 and G650 work, to reorient the company towards the commercial aviation and defence sectors and rebalance the workforce by shedding hundreds of managers and salaried workers.

Even those steps, however, may not be enough to avoid reporting further forward losses. The company’s recent filings to the US Securities and Exchange Commission make it clear that “substantial” risks lie ahead.

Spirit’s work on the A350 has been a cause for concern all year. In the first quarter, the supplier reduced predicted profit margins on the first 400 A350s delivered to zero. Airbus executives have criticised the quality and timeliness of Spirit AeroSystems’ deliveries. The SEC documents also reveal that European regulators suspended the production certificate for Spirit’s final assembly facility in Saint Nazaire, France, in late-2012. It was reinstated in April, according to the Spirit's second-quarter SEC filing.

Both the G650 and the G280 also remain at risk of further charges. Spirit had budgeted to have both programmes back on track by the end of the second quarter, but the company missed performance milestones, according to the SEC filings. As Gulfstream remains concerned about late deliveries and quality problems, Spirit acknowledges that further financial charges are possible.

The supplier is now seeking to craft a new strategy even as it extricates itself from the business jet market and works to get the Boeing and Airbus programmes back on track.

“I think Spirit grew very quickly over the last seven years and with a lot of its diversification strategy, I think it probably didn’t grow the most efficiently,” Coleal says.

The company is not without some operating advantages. Despite the diversification strategy, Boeing commercial aircraft programmes remain the source for the vast majority of Spirit AeroSystems’ revenues. Of Boeing’s five major product lines, three – the 737, 777 and 787 – are enjoying unprecedented demand, bumping production rates to record levels. The 777 reached 8.3 aircraft per month earlier this year. The 787 will advance to 10 aircraft per month by the end of the year and the 737 will rise again to 42 per month in the first quarter of next year.

These galloping production rates create a new operational challenge. To the next rate increase on the 787, for example, Spirit AeroSystems has switched to a new composite lay-up machine for the Section 41 nose barrel. The first machine laid up composite plies using two heads with separate controllers. The second machine uses two heads as well, but has separate computers that collaborate and lay plies at a faster rate.

“We have to use our brains and really think through how we can increase our rates very thoughtfully,” Coleal says.

Outsourcing work from the Wichita site is among the options being considered. The Spirit AeroSystems’ factory complex fills a corner of Wichita with a comprehensive set of production tools. The company’s workers are able to take a raw billet of metal at one end of the factory and shape it into a complete assembly by the time it leaves.

“We do almost an end to end,” Coleal says. “So we’re going to take a look at that and make sure [it] is that the right strategy because as you go to higher rates that value chain becomes more difficult to manage. And there’s more people who can do that stuff better than we can.”

To remain as a primary Boeing supplier, Spirit will have to be ready to support the next clean-sheet aircraft. The way the company builds the 737 fuselage may be completely different on the aircraft that replaces it. It is already investing in new composite manufacturing capabilities, including the acquisition in June of a new process called Inflexion.

“The beauty of composites is, if you can get away from the fasteners and multiple pieces, you can get a part that comes out complete. Maybe it takes a little longer but it comes out more complete,” Coleal says. “So… we’ve proved… you can do this stuff on a small scale. Now you have to work with the OEMs to bring them into large-scale operations.”