Spirit AeroSystems posted a $256 million loss in the second quarter, crippled by twin crises that have rocked the aviation industry as a whole: the continued grounding of the 737 Max and the long-term effects of the coronavirus.
The second-quarter loss compares with a profit of $168 million in the same period a year ago.
Spirit’s second-quarter revenue fell 68% year on year, to $645 million, “primarily due to the significantly lower 737 Max production resulting from the grounding of the program and the impacts of Covid-19”, the Wichita, Kansas-headquartered company said on 4 August.
“The dual challenges of the Max grounding and Covid-19 continue to have a significant negative impact on the global aviation industry,” says Tom Gentile, chief executive of Spirit AeroSystems.
“Spirit production levels in the quarter fell 65% from last year and 51% from the first quarter. We continue to adjust our cost base to align with the lower levels of production and to preserve liquidity,” he adds.
The company says it has now “aligned its 737 employment levels” to support production of about seven fuselages per month, in line with what Boeing will require for the rest of the year. Spirit said in June that it will produce fuselages and other components for just 72 737s in 2020 – a fraction of its previous plan and a reflection of the slow pace at which Boeing has restarted Max production, and of the likely rate of deliveries this year.
In recent months, Spirit has repeatedly cut its 2020 737 fuselage production estimates: from 216 shipsets, to 125, then to no more than 104, and then to 72.
Gentile says it was “encouraging to learn about the [FAA’s] certification flights” of the Max, conducted about a month ago, and the company is in constant dialogue with the airframer. “We will continue to monitor [Boeing’s] rates, we will work with them to determine the right level of production in 2021 and beyond,” Gentile says.
Total deliveries fell to 159 shipsets during the second quarter, compared with 449 shipsets in the same period of 2019. This includes 19 737 Max shipsets compared with 147 shipsets in the same period a year earlier.
As the global pandemic ripped through the air travel and transportation industry earlier this year, Boeing and Airbus repeatedly reduced production goals, causing headaches and planning nightmares for the company.
“Covid has resulted in a lot of uncertainty so we have received more production schedule changes this year than I think we have seen in the last five years,” chief financial officer Mark Suchinski says.
The company, which manufactures fuselages for both Boeing and Airbus, says that because both airframers have reduced their production rates, and for a longer period of time, it now expects larger forward losses for the 787 and Airbus A350 programmes of $103 million and $84 million, respectively, Suchinski says.
“The second-quarter 2020 financial results do not contemplate the anticipated impacts of lower production rates by Boeing and Airbus that have developed after the end of the second quarter,” Spirit adds. “The company is currently evaluating the potential impacts to the Boeing 787 and Airbus A350 programmes.”
Spirit says that its backlog at the end of June was about $41 billion, which includes all commercial platforms for Boeing and Airbus.
The manufacturer also says that it is cutting an additional 1,100 jobs in its commercial aerospace unit, bringing total cuts to about 8,000, or about 44% of the total workforce, Gentile says. Salaried employees are on a four-day working week through the end of the year and executives have taken a 20% pay cut to cut costs across the board.
ACQUISITIONS STILL ON TRACK
Gentile says the acquisitions of Bombardier’s aerostructures business, announced in October 2019, and Belgian component supplier Asco, announced in May 2018, still make sense for the company.
“We continue to see the long-term strategic value in the Asco and Bombardier acquisitions and we remain in discussions on conditions needed for closure of those deals.”
The Asco deal, for which Spirit agreed to pay $420 million, is expected to close by 1 October this year, and the purchase agreement for the Bombardier deal, which includes manufacturing facilities in Northern Ireland and Morocco, worth $500 million, expires on 31 October.
Gentile adds that several conditions of the deals have yet to be met.
The company had $1.9 billion in cash end of the second quarter, and Gentile says that sets the company up for success in the coming months.
“We believe the liquidity is sufficient to complete the acquisitions if the conditions are met, and fund our operations for the next 12 months.”
Article updated on 5 August to correct end of June backlog figure to $41 billion