Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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Updated with earnings call: Spirit Aerosystems reports 1Q loss, expect worse 2Q
By Scott Hamilton
May 6, 2020, © Leeham News: Spirit Aerosystems, a major supplier to Boeing and Airbus, reported a net loss of $163m for the first quarter.
The loss was a negative margin of 15.5% on revenues of $1.08bn, but it was better than analyst expectations.
With a majority of revenues coming from Boeing, the grounding of the 737 MAX continued to hit Spirit hard. The COVID-19 crisis further impacts the company.
Spirit will deliver 125 737 fuselages to Boeing this year, down from 216 previously agreed, reflecting the COVID crisis. This includes 18 delivered in January before production was suspended. Spirit did not reveal how many of 116 produced and stored in parking lots will be among the 125.
On the earnings call, Spirit said the the storage will grow somewhat, peaking in July-August. It will get back down to the 120s by year end. The inventory will decline in 2021 and “burn down” in the next two years.
COVID impact
Although Spirit’s 1Q results were better than expected, the global airline crisis and resulting impact on Airbus and Boeing will hit Spirit hard.
“The first quarter 2020 financial results do not contemplate the impacts of the recently announced lower production rates by Boeing and Airbus,” the company said. “[Spirit] is currently evaluating the potential impacts to the Boeing 787 and Airbus A350 programs. Based on preliminary assessments, the Company expects to recognize incremental forward losses in the second quarter of 2020 of approximately $70m to $90m on the Boeing 787 program, and $15m to $20m on the Airbus A350 program.”
Spirit incurred forward loss charges of $19.7m in the first quarter for the Boeing 747, 787, Airbus A350, and BR725 programs.
The company ended the quarter with $1.8bn in cash. In April, Spirit raised $1.2bn in debt. This was a $1bn ask; it was oversubscribed to $1.2bn. It used $800m to pay debt, with the remaining $400m going to the bank account.
Spirit is not seeking government funding.
Spirit suspended financial guidance for the time being.
Spirit still plans to close the acquisitions of ASCO and Bombardier’s aerostructures companies. The latter expands Spirit’s Airbus business. Bombardier’s Belfast, Ireland, facility produces A220 wings and A320 thrust reversers. ASCO expands Airbus and defense business.
Seven hundred employees displaced by reduced production are reassigned to designing and building ventilators, masks and PPEs for health care workers.
Spirit was in a profitable position for the A350 at Airbus production rate 9-10/mo. With the announced reduction to 6/mo, the company is closer to break-even.
I wonder how long of a “shelf life” each individual part or subsystem of a aircraft may have. This in light of both completed 737MAXes sitting around, and engines, computers, transducers, AOA components, etc.,… sitting on shelves in the parts department. At some point things may have to be recalibrated or cleaned up.
Not a real issue.
All those materials are not subject to deterioration.
There are some like seals that long enough and they deteriorate, I have seen equipment parked for 20 years brought back to life just fine.
Electronics are immune to that (condition would have to be far more extreme than the 40 to 120 degrees stored in)
Keep in mind they store them in the dessert and people like FedEx when they need extra lift will pull them out of storage and back into service for Holidays and such.
All the materials on aircraft are very high caliber.
In one of the 737Max crashes, I think one of them had a transducer replaced a day before in hopes this would correct the MCAS problem. The transducer had not been calibrated recently. I’d believe along an assembly line procedures would be followed pretty closely. But during times of stress, shortcuts sometimes are taken. Influenced by things like poor management, budgets, timetables, quotas, poor training…
It is a shame for a company like Aerosystems to find themselves in this financial drama, firstly by the B737 MAX, and secondly followed by the COVID-19 events affecting the airline industry and consequential deferrals and Cancelations. Wish them all Good Luck for a smooth recovery in the near future.