Higher volumes of Boeing 737/MAX fuselages and wings, Airbus A220 wings, and Bombardier corporate jet fuselages have pushed revenues of Spirit AeroSystems to $980 million in the third quarter. On the downside, the tier-1 supplier is affected by lower widebody rates and the ongoing troubles with the Boeing 787, resulting in another $46 million forward loss on the Dreamliner, it reported on November 3. More 737 and A220 deliveries compensate for Spirit's 787 woes. Looking at the 737/MAX first, higher volumes are reflected in the number of shipsets delivered to Boeing. In Q3, 47 deliveries compared to 15 last year, when production rates were very low. In the first nine months, Spirit delivered 111 shipsets compared to 52 last year. The company expects to deliver 160 shipsets this year or another 49 in Q4 and reduce its inventory of previously produced 737 fuselages and wings from 110 to 100 by the end of this year. It will work towards maintaining an inventory of twenty shipsets for flexibility by the end of 2022. Spirit ready for higher MAX production rates... With Boeing’s planned ramp-up to 31 MAX per month next year, total deliveries for 2022 should be around 275 to 300 shipsets “but it depends on what Boeing is up to after the first quarter”, CEO Thomas Gentile said. Boeing isn’t ruling out further ramp-ups, but said last week that it expects some supplier issues from mid-next year. While these issues might be different for Boeing, Spirit isn’t expecting any: “We are quite happy that we are in line with rate-readiness across our supply chain for rate 31. We have been working very hard with our suppliers, doing a lot of site visits, surveys, and reviews on raw material purchases, and on hiring. We, Spirit, and all of our suppliers have been at these levels. The capital and tooling are there, if we need employees they can be recalled,” said Gentile. “Once we get to rate 42 again, which we had in 2016, we will get back to our margin targets of 16.5 percent. Next year is still a transition period as the rates recover.” Spirit laid off 5.200 employees last year but recalled 1.200 in the past months and will rehire 4.600 over the next few years. Most of them should still be available in the Wichita area, giving the company a comfortable buffer to cater to demand. ... and also for rate 70 for the A320neo As far as Airbus narrowbodies are concerned, the number shipsets for the Airbus A220 wings produced in Belfast increased to twelve from nine in Q3. Between January and September, deliveries were 39 versus 32. The company is ready to support Airbus’ higher production rate of six A220s by mid-2022. The same applies to the higher rate of 45 for the A320neo, which Airbus wants to achieve this fourth quarter but is struggling to meet due to supply chain issues. “Airbus is talking about getting to 65 by summer 2023. We already have been at that rate, we validated that we can produce at that rate now and are protected to as high as 70.” However, Gentile acknowledges that margins for the A320neo are under pressure from freight costs and time on the water for parts that come from China. In Q3, Spirit delivered 105 A320neo shipsets compared to 108 last year or 331 versus 365 between January and September. Spirit took another $46 million forward loss in Q3 on the Boeing 787. (British Airways) Dreamliner causing the most trouble The aircraft causing the most trouble to Spirit remains to be the Boeing 787. Since Boeing paused deliveries in May over quality issues that also affect the forward nose section 41 produced by Spirit, the Wichita company has stopped building Dreamliner parts. Instead of delivering five shipsets per month, it delivered only five in three months. This compares to thirty in Q3 last year or 31 in the first nine months versus 92 in 2020. As Spirit was unable to deliver the 787 segments to Boeing and didn’t receive any cash, it produced a financial headwind or “overhead drag.” As a result, Spirit has taken a $46 million forward loss charge on the program, which is identical to that in the second quarter. Gentile expects deliveries to resume in Q4 and be higher than the five in Q3, but the resumption entirely depends on when the FAA and Boeing agree that all issues have been overcome. Only then will Spirit resume production of new parts and is ready to go to rate five per month, the number Boeing is given for 787 production once it is resumed. Boeing itself expects the 787 issues to result in $1.0 billion in abnormal costs. Gentile explained that since the quality issues on the 787 emerged, Spirit has done extensive engineering analysis to validate that the parts are built to engineering specifications. The exact extent of the rework needed on the forward pressure bulkhead has been identified. “We have already started the rework and produced the parts that are needed and it is going right on schedule.” Forward loss on the A350 related to schedule changes The 787 isn’t the only widebody causing a forward loss. So did the Airbus A350, at $20.4 million. This is related to the rescheduling of fuselage deliveries to Airbus which has caused earlier losses. Lower deliveries reflect this, with just nine A350 shipsets delivered in Q3 compared to twelve last year, or 31 versus 51 between January and September. The program is stabilizing and from an operational point of view has been the best for Spirit. For the A330neo, Spirit delivered six shipsets, up from four in Q3 last year. January-September saw fifteen deliveries compared to seventeen. Deliveries to Boeing for the 777 were also lower this quarter: seven shipsets compared to fourteen last year, or eighteen during the first nine months compared to thirty last year. 767 deliveries were almost flat at eight in Q3 (nine last year), or 27 so far versus twenty in 2020. In its final year of production, Spirit delivered just one 747 shipset, identical to Q3 last year, of four until September. Looking at deliveries, one notices the high number of shipsets of business jets from the Belfast plant: fifty in Q3 versus four last year, or 139 until September up from 26. This is because the acquisition of Bombardier Aerostructures wasn’t completed a year ago, so the numbers aren’t comparable. In fact, the integration of Belfast is now 96 percent completed. Adding up all the numbers, Spirit AeroSystems delivered 250 shipsets in Q3 compared to 206 last year or 747 versus 689 in the nine months period. Q3 operating loss of 156.6 million While earnings were up by 22 percent to $980 million, Spirit recorded a $156.6 million operating loss for the third quarter compared to $-176.9 million last year. This result reflects the forward loss as well as excess capacity costs of $57.1 million By comparison, in Q3 last year, the forward loss was $128.4 million and excess capacity costs $72.6 million. Restructuring costs and headcount reductions resulted in expenses of $19.5 million. By segment, Fuselage Systems improved revenues by fourteen percent to $481.2 million. Propulsion Systems reported revenues up 45 percent to $247.8 million, again mainly to higher 737 volumes. Wings Systems produced 44 percent higher revenues to $243 million, driven by the 737 and A220. Liquidity decreased from $1.8 billion in December to $1.4 billion. In October, the company refinanced $400 million of older debt through a new $600 million loan that also includes $200 million at a lower interest rate. Debts stood at $3.5 billion in September, down from $3.8 billion last December. As proceeds are expected to increase when revenues will further grow, Spirit plans to repay higher-interest liabilities of around $1.0 billion in the next three years. From Q4, Spirit will introduce a new business structure with Commercial, Defense & Space, and Aftermarket segments. Commercial will make up 75 percent of revenues next year as it continues to recover from the Covid and MAX crisis and prepares for the production ramp-up of narrowbodies at both Boeing and Airbus. Better production efficiency in Wichita, more digitalization, and more competitiveness between suppliers should compensate for any headwinds from lower production rates.
