Spirit Aerosystems, which makes Boeing 737 fuselages and other components, said it lost $206 million during the second quarter, as it was hit by a work stoppage and a vertical fin quality issue on the 737.
“That caused significant disruption,” for the company, chief executive Tom Gentile said on Spirit’s earnings call with analysts on 2 August. “It was obviously not planned at the start of the year. We’ve had much lower deliveries in the second quarter, we’ve had to add more people, we’re taking deliveries out of the plan.”
“It also has serious impacts the overall cash flow projection for the year.”
For comparison, the company’s second-quarter loss last year was $122 million.
The Wichita-based firm reports second-quarter revenue of $1.37 billion, up 8% from the same period last year. The 737 and 787 programmes and increased defence and space revenue contributed to the rise, but the strike and the vertical fin issues – as well as lower Airbus A220 deliveries – took a bite out of potential sales.
Operating costs were $1.49 billion during the quarter, up from $1.36 billion in the same three months in 2022.
As a result of the twin problems, the company has revised its expected total deliveries of 737 fuselages this year down to between 370 and 390. So far in 2023, it has delivered 169, including 74 during the second quarter. It is anticipating delivering 35 fuselages per month for the rest of the year.
But on the positive side, rework for the 737 has been successfully completed, and the Wichita-based company is concentrating on moving forward, executives say.
“The rework on the 737 fuselages in Wichita was completed during the second quarter, which was ahead of the timeline we provided on our last call and within the financial estimates that we provided,” Gentile says. “We were quickly able to develop a repair process and prioritise the rework.” In May, the company had said the rework would cost about $31 million.
Spirit says it estimates that Boeing has completed approximately half of their required rework on the 737 vertical fin attach fittings issue. The repairs have been made on “73 or 74” aircraft at the Boeing facility.
“Additionally, we do not expect the material financial impact associated with previously delivered airplanes in the fleet,” he adds.
The company recorded a provisional liability of $23 million during the second quarter to account for a potential claim from Boeing for repair work to date at their facility, Gentile says. However, chief financial officer Mark Suchinski warns that “any potential claim we may receive from Boeing could be materially different from our estimate”.
”The $23 million only represents the units that are at Boeing,” Suchinski says. ”And yes, it represents half of what we think is going to need to be done eventually. But that was the best estimate we could make. And so we took the charge based on the low end of that estimate.”
Boeing in mid-April had revealed that it had stopped some 737 deliveries due to the fuselage issue. The problem affected 737 Max 8s and 737NG-based P-8 military surveillance jets, including those already in service.
NEW CONTRACT
Also during the second quarter, the company came to an agreement with the International Association of Machinists and Aerospace Workers (IAM), which represents about 55% of Spirit’s US employees, following a short strike.
“We are very pleased to have in place a four-year contract with our IAM-represented employees, which reflects the gratitude we have for their contributions. While the first vote resulted in a work stoppage, we quickly went back to the table with our union partners and reached a resolution. However, the strike did impact our production and deliveries,” Gentile says.
On 21 June, IAM-represented employees voted to reject the company’s first contract offer and to strike. A day later, Spirit suspended its Wichita factory production. Further negotiations ensued and the parties came to an agreement which was ratified on 29 June. The company began restoring operations the next day, and fully resumed operations on 5 July.
“With the IAM contract negotiations and our rework of the vertical fin attach fittings behind us, we look forward to executing on our customer commitments for the rest of the year,” Gentile adds.
At the moment, the company expects to produce 40-45 shipsets for 787s, “about 60” Airbus A350 shipsets, 580 A320 shipsets, and 75-80 A220 shipsets during the full year 2023.
During the first half of the year, the company delivered 688 fuselages, and 342 of those were in the second quarter.
“We expect that there will be continued challenges associated with the supply chain and stabilising our factories going forward,” Gentile says, adding that the company is making “prudent investments” to help solve those issues.
“Our focus in the back half of the year is on executing our production rate increases across all programmes. We expect these actions will help enable us to drive sustained improvement in cash flows going forward.”
