Strike and 737 quality issue impact Spirit Aerosystems' Q2 earnings and deliveries

Spirit Aerosystems reports $206 loss during second quarter due to work stoppage and quality issues.

Spirit Aerosystems, a company that makes fuselages for Boeing 737s and other components said it had lost $206M during the second quarter due to a work stoppage as well as a quality issue with the vertical fins 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."

Comparatively, the second-quarter loss of last year's company was $122 millions.

Wichita's firm reported a second-quarter revenue totaling $1.37 billion. This is an 8% increase over the same period in 2013. The increase in revenue from the 737/787 programmes, increased defence and aerospace revenue and lower Airbus A220 sales were all factors.

Operating costs increased to $1.49 billion for the third quarter of 2022, from $1.36 million in the same period in 2022.

Due to the two problems, the company revised its total expected deliveries of 737 fuselages for this year from 737 to between 370-390. It has already delivered 169 fuselages in 2023. Of these, 74 were delivered during the second quarter. It expects to deliver 35 fuselages a month for the remainder of the year.

Executives say that the Wichita based company has successfully completed the 737 rework and is now focusing on moving forward.

"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 estimates that Boeing completed about half of the required rework in relation to the vertical fin attachment fittings problem on 737. Boeing has completed repairs on "73 or" 74 aircraft.

"Additionally, we do not expect the material financial impact associated with previously delivered airplanes in the fleet," he adds.

Gentile says that the company recorded a provisional obligation of $23m during the second quarter in order to account for any potential claims from Boeing regarding repair work done at their facility. Mark Suchinski, chief financial officer of the company, warns however that "any claim we might receive from Boeing may be materially different than 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 announced in mid-April that it had halted some 737 deliveries because of the fuselage problem. The issue affected both 737 Max 8s as well as 737NG-based P-8 surveillance aircraft, including those in service.
After a brief strike, Spirit also reached an agreement during the second quarter with the International Association of Machinists and Aerospace Workers, which represents approximately 55% of Spirit’s US employees.

"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 mentions.

IAM employees who were represented by the union voted on 21 June to reject Spirit's first offer of a contract and to go on strike. Spirit suspended production at its Wichita plant a day later. The parties continued to negotiate and reached an agreement that was ratified by the 29th of June. The next day the company started restoring its operations, and on 5 July it resumed full operations.

Gentile says, "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."

Currently, the company is expecting to produce 40-45 787 shipsets in 2023, "about" 60 Airbus A350, 580 A320, and 75-80 A220.

The company delivered 688 fuselages in the first half of this year. Of those, 342 were delivered during 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."

Source: flightglobal.com