Spirit AeroSystems launches divestments, reports new charges

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Spirit AeroSystems has started a process to divest two manufacturing sites in Oklahoma that are responsible for potentially more than $1 billion in forward losses announced by the company within the last two years, including a new pre-tax charge estimated between $350 million to $400 million during the second quarter.

The new effort to sell off the wing and subassembly manufacturing sites in Tulsa and McAlester comes as the company also announced it is postponing the release of second quarter earnings because the auditors have not completed their review.

Spirit expects that the auditors will certify that revenues improved by 13% in the second quarter to $1.52 billion, while backlog rose $2 billion to $38 billion. Operating performance also improved before factoring in the forward-loss charges, Spirit says, without elaborating.

The Wichita, Kansas-based aerostructures supplier reports the divestitures amidst reports of staff lay-offs and an ongoing strategic review aimed at re-balancing the company's product strategy less than a decade after emerging from Boeing ownership and becoming a diversified aerospace supplier.

Since emerging as Spirit AeroSystems in 2004, the company under former chief executive Jeff Turner's leadership worked diligently to expand its product portfolio beyond its legacy as an exclusive Boeing aerostructures and wing components supplier.

In a span of five years, Spirit executives won new business on Gulfstream's two newest programmes with the G280 and G650, displacing previous suppliers including Vought Aircraft division of Triumph Aerostructures. The company also was selected to build the cabin of the Sikorsky CH-53K, a heavy-lift helicopter in development for the US Marine Corps. Spirit also became a major supplier on the Airbus A350XWB, shipping the Section 10 centre fuselage and the front spar and fixed leading edge of the wing from a new factory in Kinston, North Carolina.

At the same time, Spirit's strategy emphasised maintaining its positions as a premier member of Boeing's supply chain. The company won the rights to build the Section 41 nose sections of the 787 and 747-8, as well as major elements of the wing structures and engine nacelles.

But the company struggled to keep costs under control with so many development programmes ongoing at the same time, especially as some of the programmes encountered significant delays downstream of Spirit's role in the supply chain.

The financial impact of the deals began to be felt in the first quarter of 2012, when Spirit announced an $11 million charge attributed to the G280 and a $3 million forward-loss on the 747-8 wing components. A $7 million charge on the A350 wing followed in the second quarter, but the real impact came later. In the third quarter last year, Spirit disclosed $591 million in new charges, including major losses on the wing programmes of the 787, G650 and G280, as well as the engine nacelle of the G280.

The disclosure likely cost the job of the chief executive, as Turner announced he would resign in tandem with the reported charges. The red ink continued to spill into the fourth quarter, as Spirit reported another charge of $20 million on the G280 wing.

Including the latest charge in the second quarter, Spirit's work on the two Gulfstream programmes have led to forward-losses of between $783 million and $833 million.

Larry Lawson, formerly head of Lockheed Martin's Aeronautics division, was hired to replace Turner in the second quarter, and he immediately launched a strategic review of the operation. In a June interview with Flightglobal, Lawson said that the review was considering all aspects of Spirit's operation, and he noted the company was open to moving further into the defence business where its cost structure and expertise could be a good match.