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February 26, 2024

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The company’s report starts with this quote.

Speaking on behalf of everyone at Spirit, the quality and safety of the products we produce is paramount above all,” said Pat Shanahan, President and Chief Executive Officer of Spirit AeroSystems. “Over the past month, we have been working shoulder to shoulder with our customer to take a series of actions to strengthen our systems and processes to accelerate the improvement of our operations.

The profit is a surprise and is driven by the MOA it signed with Boeing. Adjusted EPS of $0.48 is better than the consensus estimate of a loss of -$0.35.

Spirit AeroSystems

Spirit’s revenue in the 4Q23 increased from the same period of 2022 primarily due to higher production deliveries on Commercial programs, higher Defense and Space and Aftermarket segment revenues, as well as the previously disclosed impacts from the Boeing Memorandum of Agreement (the “MOA”) executed in October 2023 including favorable pricing adjustments on the 787 program and the reversal of the potential claim related to the 737 vertical fin attach fittings issue.

Overall deliveries increased to 398 shipsets during the 4Q23 compared to 343 shipsets in the same period of 2022. This includes 737 deliveries of 104 shipsets compared to 81 shipsets in the same period of the prior year.

Spirit’s backlog at the end of the fourth quarter of 2023 was approximately $49 billion, which includes work packages on all commercial platforms in the Airbus and Boeing backlog.

  • Operating income for the 4Q23 improved compared to the same period of 2022, primarily driven by the favorable impact of the Boeing MOA the 787 program, including favorable change in estimates as well as a material right obligation liability reversal recognized during the fourth quarter of 2023.
  • As a result of the favorable pricing adjustments to the 787 program resulting from the Boeing MOA, Spirit recorded forward loss reversals of $205.6 million and material right obligation liability reversal of $155.0 million related to the 787 program during the fourth quarter of 2023.
  • Total change in estimates in the 4Q23 included net forward loss reversals of $34.3 million and unfavorable cumulative catch-up adjustments for periods before the fourth quarter of $55.4 million.
  • The forward losses on the A350 program of $76.0 million and the A220 program of $57.7 million include net incremental losses for anticipated performance obligations beyond 2025 of $28.8 million.

Like Boeing, Spirit is not guiding until further clarity is reached on the timing of 737 MAX production rate increases, subject to FAA approval and ongoing price negotiations with Airbus.

Our chat with the A220 program manager yesterday alluded to Airbus’s ongoing focus on the program’s challenges.

The biggest overhang for Spirit Aero is its core role in the 737 MAX program.  As noted by Vertical Research Partners: “Like Boeing, Spirit’s world changed on January 5th when the Alaska door blew off a 737 MAX, and its largest program now faces an uncertain outlook. This week’s latest quality escape story will not help, but at least Spirit had secured a new agreement with Boeing before these fresh problems.”

Customer annoyance at Boeing has risen to a level not seen, possibly ever. While (quite rightly) some of the annoyance passes through to Spirit Aerosystems, Spirit and Boeing’s codependence ties them together.  This codependence is why several people talk about Boeing taking Spirit back into the mothership.

But that may not be the panacea it appears.  Why? Because of uncertainty around the MAX program due to quality problems that come on an alarmingly regular basis.  Besides Tim Clark’s scathing remark yesterday, we have an “angry” CEO at hometown customer Alaska Airlines.  Family DNA customer United is looking to Airbus for a solution to the MAX 10. Southwest and Ryanair are standing by Boeing and the MAX program because they are out of options.

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Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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