Spirit, Airbus and Boeing: take-aways from analyst day

Spirit Aerosystems held an aerospace analyst day March 7 and several reports have already been issued. Given Spirit’s close association with Boeing 7-Series programs, we thought the following is useful information. Spirit is also a major supplier to Airbus on the A35, building sections of the composite fuselage at its North Carolina facilities.

Buckingham Research

  • By most accounts, SPR is executing well on the 787-8 production program with costs at or below projected levels. Design work on 787-9 is also going according to schedule and both SPR and BA appear to be applying lessons-learned on the 787-8 program to the 787-9. SPR noted they achieved a cost reduction of $150k per shipset on the 787-9 as a result of design improvements.
  • SPR’s 2014E sales guidance assumes both BA and Airbus adhere to their stated production rate schedules. While we think BA achieves 737 production rate increase of 42/mo and 777 rates of 8.3/mo on schedule, we assume BA doesn’t achieve 787 production rates of 10/mo until late 2014 vs. BA’s guidance of late 2013.
  • SPR noted that there is little margin remaining on A350 development. As such, if there was another delay to the A350 program, that delay would translate directly to SPR. We think there is a strong likelihood that there is going to be another 6 month A350 program delay and see EIS towards the end of 2014 or possibly early 2015. We think another delay to the A350 is well within investor expectations and is already priced into SPR shares.

Credit Suisse

  • SPR expects to be at a rate of 3.5/mth on its 787 content by the end of March and is currently facilitating the factory for 10/mth. Fiber placement remains the biggest challenge in terms of rate ramp, followed by automated fastening and then systems and testing, which one year ago would have been the most limiting factor, but SPR has matured in this area, reducing risk. Long-term, autoclave capacity (there is only 1 in Wichita) is the limiting factor for rates >13/mth. The biggest risk for SPR on 787 today is schedule slide by Boeing – currently it is planning to ship 40 787 units to Everett in 2012.
  • While it appears booking above zero margin on 787 is still a few years out, we sensed a greater level of confidence from management that sustained profitability can be achieved in the first block of 500 units (we think perhaps ~2014 timeframe). On 747-8, margins should improve after this first rather short block of 56 units (that ends 4Q’12) providing better contribution in 2013 (current block is in a forward loss).

Goldman Sachs

  • 787: SPR has delivered ship set number 60 to Charleston, and is planning to deliver 40 ship sets in 2012.
  • 787: SPR is working very closely with BA on the 787-9 and reports that the aircraft is currently on time and at weight. 25% of the engineering has been released on the -9 and management noted savings of $150K per ship set by switching to aluminum from titanium on certain structures. These savings are incremental to what is being built in to company projections.
  • A350: Management noted that the wing design should be finalized by June of this year.

Wedbush Securities

  • The company was very confident about the risk reduction in the 787. The company still expects to turn positive from a cash standpoint on 787 unit 125-150, which we expect the company will cross in the summer of 2013.
  • In our view the risk for additional charges in 2012 is focused on the A350 and the G280. The company expects a milestone in July on the A350 design efforts, which could lock down some of the design issues on the plane, which would be a significant milestone.

Wells Fargo

  • As part of the settlement with Boeing, Spirit has substantial cost reductions that need to made on the 787. We saw unit #84 beginning the production process while Spirit has delivered only unit #60 to Boeing meaning there are over 20 units in some form of production (and therefore, inventory). By the end of March, Spirit expects all aspects of its 787 production to be in line with Boeing at 3.5 shipsets per month. Our sense from the factory visit (compared to our last visit 14 months ago) is that Spirit has made substantial progress and probably is running ahead of its cost reduction targets.

 

12 Comments on “Spirit, Airbus and Boeing: take-aways from analyst day

  1. hopefully- the switch from Al to Ti based parts will not bring about certain corrosion effects between al and carbon composites. Al + c and a bit of moisture make a fair battery.

    yes, I know coatings have been developed, yada yada – and al is cheaper than TI , easier to work, form, drill, cut, etc

    but dependance on a magic film coating IF aluminum parts are up against carbon composites for say 30 or 40 years is foolish.

  2. Which part of the supply chain is actually causing these delays?

    • The reduced flow of blood between the ears of the bored of directionless combined with the reduced vision thru the plastic bellybuttons

      • Is that a temporary condition or is it correctible? The symptoms you describe have appeared many times in past posts when the concerns were focused on Labor management issues.

        Now they seem to be similar ones but focused on supply chain issues.

        I wonder if these conditions are contagious and cut right across all levels of operation.

  3. it is a virus which is spread by power point rangers – but limited to level 3 or above executives

    In a week or two- the annual meeting proxies will be out, along with the standard slick PR pub called the annual report.

    And some whining about pension costs, yada yada

    No doubt they will have ” turned the corner ” – only to find they were lost

    • Don,
      Perhaps by recognizing that they were lost ,they can find their way back to the standards of excellence that once characterized this Company.

      There seem to have been some reconciliation between Labor and Management and a collaboration has been formed to encourage management and labor to work together to improve efficiencies. Work is being returned to where it should be and engineering is given an equal footing with input.

      There are cures for a virus and it does not have to stay in the system forever

      • suggest you read “Turbulence: Boeing and the State of American Workers and Managers,” published by Yale University Press..

        Its quite a well done study – and it sums up what happened when McDouglas bought Boeing ( with Boeings Money ) and how things changed from a ‘ family” oriented company to a ” this aint your fathers boeing ‘ game

        excerpt from seatte times

        In the years after the 1997 merger with McDonnell Douglas, they suffered through mass layoffs, heavy outsourcing of their jobs, relentless cost-cutting and a dizzying pace of change.

        Meanwhile, a seemingly rudderless management let rival Airbus soar past Boeing to become the world’s top plane maker, and shocking ethics violations on the defense side debased the company’s reputation in the U.S.

        A new book charts in detail how that corporate turbulence devastated the morale and poisoned the attitudes of employees. It documents a sense of betrayal reaching from the factory floor to the management offices.

        …..

        I was lucky- got out two years before the fiasco.

        But I know and deal with many who are still there.

        Of course there was an excellent manager who bailed out a few years ago when it became obvious that he would not get the brass ring. He went into a different industry, made/making a bundle – and still lives in Seattle… name is Mulally ;-)) And I’m one of the few ( hundred) grunt level types who got hugged by him . . but thats another story

  4. “A350: Management noted that the wing design should be finalized by June of this year.”

    “The company expects a milestone in July on the A350 design efforts, which could lock down some of the design issues on the plane, which would be a significant milestone.”

    I assume these mean the A350-1000?

  5. Airbus get recently two sets for the A359 , The Static, & MSN001 !
    May be only the “Go ahead” for the following MSN (002 to 005)

  6. well let us hope so.So far the suppliers have let a350 programme down.If specks, do not change, why are parts late.Spirit has to much work and i think will fall behind.It needs to deliver the frames on time. Airbus ALSO NEEDS TO check and double check the process so we do not get same a380 probs.It should make a completed plane by year end, if not it will loose out to Boeing.they will kill a350 before it takes off.The whole management and production need to be carefully maintained.It seems that the engine is ready but the plane is not.It is a joke.but they will get like Boeing millions in aid to make this happen.I hope for true engineering excellence it is on track,if any one can the Germans will be on track.

  7. Very interesting comments Don,
    However, my experience confirms that the “corporate turbulence devastated
    the morale and poisoned the attitudes of employees,” happened long before
    MDD bought Boeing with our money.
    In fact, that process started after Bill Allen retired and “T’ and many of his Mi-
    nuteman colleagues, totally inexperienced in Commercial Aviation matters
    and headed by “T” and “Tex,” started the process, which allowed Airbus to
    take over our supremacy in commercial aviation by the end of the last century!

    Cancellation of the 737 program, overturned only by intervention of the Board
    and initiated by Jack Steiner, the 747SP, Aux. Turbines, the massive amounts
    of money invested and totally waisted in totally unrelated products to aviation,
    like Mass-transit, Hydrofoils, Aux. turbine eng.’s etc. in the 70’s, as well as their
    refusal to face up to the major challenge from Airbus, until it was too late in
    1992, are all confirmation of what I mentioned above and is the principle sub-
    ject of my forthcoming book, provisionally titled “The challenges of a Boeing
    Salesman.”

    • Right on rudy ! – I retired in 1995 and was at BA from 1960 on except for a few years 1969-72 as a result of the SST.

      I recall when BA lost the TFX, Bill Allen made it very clear that any manager who said we got screwed would no longer be such. And under Frank S there was a mantra of ‘ dont be too concerned ‘ about Airbus. After doing such a great job on the first 747 series, the 727, AND at the same time a great job on Saturn-Appolo- Lunar Orbiter – Lunar Rover- and yes Minuteman, and a few other projects, it was hard to imagine how the ‘ family’ disintegrated.

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