Spirit AeroSystems’ second quarter net profit jumped 16% year-on-year to $168 million despite a surge in costs related to the grounding of the Boeing 737 Max.

Earlier this year the Wichita-based aerostructures company, which makes 737 fuselages, had started the complex, expensive process of preparing to increase production from 52 to 57 737 fuselages monthly.

Spirit had all the resources it needed for the higher production rate – tooling, materials and funding, for instance – when regulators grounded the 737 Max in March.

In response, Spirit, which generates about half its revenue from 737s, abandoned the production rate increase. It has since maintained the 52-monthly rate even though Boeing reduced its production to 42 737s monthly, resulting in a glut of excess fuselage inventory.

“Taking the factory back down to 52 in a short period of time created whipsaw effect that caused a lot of disruption in a complex production system,” Spirit chief executive Tom Gentile says during the company’s second quarter earnings call on 31 July. “The second quarter was really a transition quarter for Spirit, absorbing those associated disruption costs.”

Spirit’s second quarter revenue increased 9.8% year-on-year to $2 billion, while expenses jumped 10.5% to $1.8 billion.

The fuselage division’s second quarter operating profit slipped 17% year-on-year to $136 million.

Though fuselage revenue increased 7% to $1.1 billion, Spirit’s fuselage profit margin slipped several percentage points to 12.4%, “primarily due to higher costs related to the Boeing 737 programme”, it says.

Spirit’s propulsion system second quarter operating profit jumped 31% year-on-year to $98 million, while the wing unit’s operating profit inched up 1% to $57.4 million.

Spirit is now stabilising 737 fuselage production at the 52-per-month rate and aiming to cut costs 5%, Gentile notes. Cost cutting moves include less use of contractors, slashing employee overtime work, implementing periods of unpaid employee furloughs and freezing hiring, says Gentile.

Temporary furloughs mean some 6,000 Spirit staff are working shortened workweeks, the company says.

“The financial benefits will be realized beginning in the second half of the year,” he says.

Spirit is unlikely to increase 737 fuselage production this year, Gentile adds.

Boeing has said it hopes to get the 737 Max back in service in the fourth quarter and to boost 737 production to 57 aircraft monthly in 2020.

But even when that happens Spirit will stay at 52 fuselages monthly until it burns through fuselage inventory accumulated during the grounding, Gentile says.

Source: Cirium Dashboard