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Spirit AeroSystems slashes costs amid revised 737 production plan

Spirit AeroSystems, maker of Boeing 737 fuselages, has unveiled a plan to reduce 2019 costs by some $50 million and shelved plans to boost 737 production.

The company also intends to take cash advances from Boeing to support the acquisition of production materials, Spirit said on 1 May, the day it announced its first quarter earnings.

“Our previous plans had been to increase production from 52 to 57 aircraft per month during the second quarter,” says Spirit chief executive Tom Gentile during the earnings call. “We now expect to remain at 52 aircraft per month for some period of time.”

To shore up its finances, Spirit has revised its planned 2019 capital expenditures to a range of $200-250 million, down from a previous $250-300 million plan.

“We are taking a number of actions to mitigate the impact of this new production schedule,” Gentile says. “We have begun taking immediate actions to reduce expenses, defer capital investments and redouble our efforts on working capital improvements.”

The Wichita-based company will achieve the savings largely through delays to infrastructure projects involving items such as buildings, even sidewalks, he says. The changes are intended to avoid impacting Spirit’s aircraft programmes or research and development efforts.

Spirit has implemented a hiring freeze and will reduce overtime and contractor expenses, but plans no layoffs, Gentile says.

The news came as Spirit announced a $163 million profit in the first quarter, up 30% in one year. Revenue jumped 13% year-on-year to $2 billion.

Spirit also said on 1 May that it signed a deal to receive cash advances from Boeing to “for supply chain working capital requirements”, Gentile says.

Those funds will help Spirit support suppliers, some of which might struggle with excess inventory costs under the new rate plan. Spirit plans to buy some of that excess inventory from its suppliers.

Prior to the 737 Max grounding, Boeing (and Spirit) produced 52 737s monthly and had planned to reach 57 aircraft monthly this year.

The grounding led Boeing to cut production to 42 aircraft monthly, but Spirit negotiated a deal with Boeing to maintain the 52-per-month rate. Boeing is taking delivery of, and paying Spirit for, ten extra fuselages per month. Spirit is storing them at its facilities.

Boeing still plans eventually to hit the 57-per-month rate. But when that happens, Spirit will stay at 52 until Boeing burns through the excess inventory, which would occur at a rate of five fuselages per month, says Gentile.

Staying at the 52 rate longer will let Spirit stabilise production after having struggled in recent quarters to reach Boeing’s targets, he adds.

Spirit makes 737 fuselages on three production lines that can churn out 21 fuselages each per month. It uses “buffer days” keep the entire system at the 52-per-month rate, says Gentile.

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