UPDATE – Doubling the number of 737/MAX deliveries to Boeing helped Spirit AeroSystems to push revenues up by 26-28 percent in Q2 and HY1 respectively. The Tier 1 supplier is expecting a slower increase in production rates for the coming period as the industry continues to suffer from supply chain issues. The positive side is that this allows Spirit to stabilize production, it said on August 3. Spirit AeroSystems: higher deliveries but also higher net loss.
In Q2, the Wichita company delivered a total of 318 shipsets to Boeing, Airbus, and Bombardier’s corporate jets business unit, compared to 235 in the same quarter of last year. For HY1, the numbers are 639 versus 497.
Boeing received 71 737 and MAX fuselages in Q2 compared to 35 last year, or 131 in the first six months versus 64 in the same period of 2021. This reflects the ramp-up of MAX production at Boeing since last year, but rates at Boeing are now kept at a maximum of 31 per month. The main reason is slower engine deliveries from CFM, which like Spirit itself is struggling with material and labor shortages.
Staying at rate 31 should allow Spirit to stabilize MAX production for the rest of the year. This should bring total 737/MAX deliveries to some 300 frames for the full year. CEO Tom Gentile is expecting rate 31 to continue in 2023 as well, as Boeing is taking the lead. In Q2, it delivered nineteen fuselages from its inventory, which by the end of June totaled 66, with some fuselages having been repositioned from Wichita to Renton for quicker availability to Boeing. In time, Gentile still wants to burn off the buffer to twenty as he said on earlier occasions.Â
Spirit delivered eight 767 shipsets in Q2 versus nine last year or sixteen versus nineteen in HY1. Triple seven deliveries were static at six in the quarter and eleven in the first six months. With the last 747 on the assembly line in Everett, the Jumbo Jet is no longer part of Spirit’s portfolio. The last shipset left Wichita in Q1 and no shipsets were delivered in Q2.
Dreamliner production continued at very low rates, so Spirit delivered just four shipsets to North Charleston instead of eleven last year. For HY1, seven compares to 26 for 2021. Spirit took a $31 million forward loss on the 787, with about half of that related to the production schedule for this and next year as well as some engineering costs to assist Boeing to get aircraft ready for delivery. Another factor was that a major 787 supplier on the US West Coast is in trouble, so Spirit opted to move work to another one.
Gentile said that he was happy with media reports that the FAA has approved the production and rework plans for the 787, but he didn’t confirm that. He said that the FAA has not requested any further documentation from Spirit on the production quality issue of (nose) Section 41. With deliveries to restart probably next week, the numbers are expected to gradually increase again, although Boeing has said that the rate will not go beyond five per month. Spirit expects to produce another thirteen nose sections in HY2 to bring total deliveries to Boeing to twenty. Chief Financial Officer Mark Suchinski still expects the 787 program to break even and become cash flow positive in 2025-2026.
Airbus
Airbus, again, was Spirit’s biggest customer. It received 147 shipsets for the A320neo family in Q2 compared to 96 last year, or 302 versus 226 in HY1. Airbus said last week that it will delay the planned ramp-up to a rate of 65 aircraft per month by six months to early 2023, citing supply chain issues. In Q1, Gentile said that Airbus had been taking delivery of extra shipsets to build itself an inventory as it prepared for the higher rates.Â
Production of A220 wings and parts totaled sixteen shipsets compared to fifteen in Q2 last year, or 34 versus 27 for HY1. Spirit took a $25 million forward loss on the A220 after one of its sub-suppliers went bankrupt and costs had to be made to relocate the production. This is one of a few suppliers that went bankrupt. Although this affected the supply chain, Gentile stressed that Spirit has been able to guarantee supplier continuity to customers. In June, Spirit officially opened the production facility in Casablanca (Morocco) for the production of A220 fuselage sections (main picture).
In Q2, the number of segments for the A350 program was unchanged at eleven this and last year. Including Q1 deliveries, they were up to 26 from 23. A330 deliveries were six shipsets versus four in Q2 and twelve versus nine in HY1.
Bombardier took delivery of 49 shipsets versus 46 in Q2 or 99 versus 89 in HY1.
Net loss of $122 million for Q2
Spirit AeroSystems reported a consolidated Q2 net loss of $-122.2 million compared to $-135.3 million last year. The operating loss was $-104.7 million versus $-97.7 million. Revenues increased to $1.258 billion compared to $1.002 billion. The result includes a $63.7 million forward loss on the 787 and A220 programs and an unfavorable cumulative catch-up adjustment of $8.0 million caused by schedule changes, part shortages, and higher supply chain costs on the 737/MAX and A320neo programs. Also included are $41.9 million in estimated losses caused by the sanctions on Russia, although a previously reserved $13.8 million forward loss was reversed. Excess capacity costs in Q2 related to the 737/MAX and A320 programs were $44.9 million.
For HY1, the net loss was $-175 million compared to $-306.9 million last year, an operating loss of $-146.9 million versus $-223.6 million in 2021. Total revenues were $2.433 billion compared to 1.903 billion. Free cash flow in HY1 was $-377 million versus $-251 million in the same period last year and also worsened in Q2 to $-79 million from $-53 million, due to higher working capital costs and a $293 million interest payment related to the repayment of an investment agreement to the UK’s Department of Business, Energy, and Industrial Strategy. Cash costs include another $31 million quarterly repayment to Boeing related to an advance payment it received in 2019 when the MAX was grounded but Spirit continued to produce fuselages.Â
By segment, Commercial reported a $-45.1 million operating loss in Q2 (2021: $-44.7 million), or $-48.5 million in HY1 ($-127.6 million). The operating margin was -4.4 percent in Q2 (-5.6 percent) and -2.5 percent in HY1 (-8.5 percent). Revenues grew to $1.031 billion from $804 million in the second quarter and to $1.970 billion in HY1 from $1.5 billion. Both the Defense & Space and Aftermarket business units contributed positively to the quarter and half year results, with Aftermarket benefitting from more MRO activities and the sales of more spare parts.Â
Chief Financial Officer Suchinski expects Spirit to be free cash flow positive in 2023. The key drivers for that are 737/MAX deliveries at a rate of 31 per month, the resumption of 787 deliveries, burning off inventory, a prudent eye on capital expenditures, and solving the problems related to bankruptcies from suppliers. Spirit is actively recruiting new staff in Wichita again, although current staffing is solid right now in most of its sites. It recently held a fair in Wichita as it has exhausted its recall list of staff that was furloughed during the pandemic.Â
