Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
UPDATE: Spirit close to breakeven in a ‘dynamic’ environment, CEO says
By Bryan Corliss
Nov. 3, 2022, (c) Leeham News: Spirit AeroSystems said today its third quarter revenues grew by 30% year-over-year, driven by an increase in deliveries for Boeing’s 737 MAX program.
The company posted positive operating income of $4.5 million for the quarter – its first positive income since 2019 – but reported an overall net loss it said was due mainly to charges connected with the cost of terminating an employee pension plan.
Spirit said it delivered 69 Boeing 737 shipsets during the third quarter — 23 a month — compared to 47 shipsets in third quarter 2021.
Boeing deliveries are expected to be stable at 31 a month for the foreseeable future, Spirit President and CEO Tom Gentile said.
“Given that our production rate is set at 31 aircraft a month on the 737 program now, and we will likely remain at that rate for much of 2023, we are initiating a focused effort to reduce structural costs to enhance our profitability and cash flow in 2023,” Gentile said in the company’s earnings release.
The company faces challenges, however. “We continue to see disruptions in our factories due to part shortages, increased levels of employee attrition and volatile schedules,” Gentile said.
Spirit, which had reduced its quarterly dividend to 1 cent a share in 2020, said it will suspend dividend payments entirely starting in the fourth quarter, “due to the current challenging macroeconomic environment.”
SUMMARY
- Labor and supply chain issues ‘dynamic’
- Spirit to slowly work through 737 backlog
- Defense diversification helps bottom line
- More demand for spares and maintenance
Labor and supply chain issues ‘dynamic’
A tight labor market is causing operational and financial issues for the company, Spirit executives said during a conference call with analysts.
“We’ve got to get the factories healthy,” Senior Vice President and CFO Mark Suchinski said.
At the onset of the pandemic, Spirit let go more than 5,200 workers, through a combination of layoffs and voluntary separations.
As the industry recovered, the company has started to add headcount, CEO Gentile said. It has recalled 470 former workers and hired 1,900 new ones.
However, the rates of attrition with new hires is higher than the company would have expected, the executives said. Overall, Spirit is seeing between 9% and12% turnover, and in particular, entry-level mechanics are quitting at rates higher than that.
“The higher levels of attrition mean we had to go back and hire again,” Gentile said.
To compete in a tight job market, Spirit has raised entry-level pay and is offering a $3,000 signing bonus, the executives said. The company also is hiring contractors to flesh out its workforce.
The new hires are less experienced than the retired workers they’re replacing, which means a longer learning curve, Gentile said.
Suppliers are having similar issues, the executives said, with Suchinski going as far as to say that stabilizing production rates at the current 31 a month rate for 737 fuselages is proving more challenging than past rate increases that went over 50 a month.
Orders from Boeing and Airbus also are subject to change, the executives said. During the quarter, Airbus pushed back delivery dates on 30 A320 shipsets into 2023, they said. And while Boeing’s headline rate of 31 737s a month seems stable, the exact mix of 737-8s and 737-9s can be volatile.
“The recovery has been more uncertain than any of us expected,” Gentile said. “It’s been dynamic. Production schedules have changed. It’s changing on a weekly basis.”
Spirit has experienced its own parts shortages from its lower-tier suppliers, Suchinski said, although it’s at a point where “We feel like we can have good control of it.”
But looking ahead, he said “we’ve got a few key suppliers that we’re depending on to get these parts in the fourth quarter.”
Spirit to slowly work through fuselage backlog
Spirit aims to deliver about 100 737 shipsets in the fourth quarter, the executives said. That includes both new-built fuselages and “eight to 10 units” that weren’t finished during the third quarter, but will ship in the fourth.
Spirit currently has 72 shipsets in storage, the executives said, and it plans to slowly work through that backlog in the future. Boeing and Spirit have agreed that the company will maintain about 20 fuselages as a long-term reserve to buffer against future rate changes or production problems.
“It allows us to have a cushion,” Gentile said. “We know there are some challenges in the production system, things that happen right before delivery.”
Spirit reduces losses in Commercial segment
Overall, Spirit reported a net loss of $128 million for the quarter, on revenues of $1.28 billion. For the first nine months of the year, it showed net losses of $303 million, which was an improvement compared to last year’s loss of $421 million for the same period.
In its Commercial segment, Spirit reported quarterly revenue was up 32% (to $1 billion), largely because of increased demand for Boeing 737 and 777 components and Airbus A320 parts. Spirit — which is well-known for supplying 737 fuselages to Boeing from its Wichita factory — builds forward fuselages, nacelles and struts for the 777, 767, 787, and 777X, along with leading and trailing edge wing components for the A320, wings for the A220 and fuselage panels for the A350.
The company recorded losses on its A350 and 787 programs, related to higher labor costs and parts shortages and, in the case of the A350, rework.
Spirit was very close to turning a profit on its commercial aircraft operations, the executives said. It recorded a loss of $35 million for the quarter, but $31 million of that was a required repayment to Boeing of loan the OEM had provided to Spirit during the 737 MAX grounding.
“We were almost break-even in a very challenging quarter,” Suchinski said.
Ending the pension – which killed Spirit’s profits in the quarter – will add between $120 million and $150 million to the bottom line next year, the company said.
Diversification into defense helps bottom line
Spirit’s Defense & Space unit increased its revenues by 17% grew its operating margin to 11% in the quarter (up from 6% last year), and said its profits would have been greater except for lower KC-46 tanker revenue. (Spirit supplies the forward fuselage for the 767 and KC-46, plus other components.)
The increases were due to higher production revenue on Boeing’s P-8 program and Sikorsky CH-53K helicopter. Spirit provides the all-composite cabin and cockpit for the helicopter, which is used by the U.S. Marine Corps.
Spirit has converted 1.2 million square feet of factory space that used to be dedicated to widebody commercial jet components to defense programs, the executives said.
In the quarter, Spirit won a contract to produce replacement horizontal stabilizers for U.S. Air Force KC-135 tankers.
More demand for spares and maintenance
Spirit reported revenues in its Aftermarket segment grew 38% compared to last year’s third quarter. That was due to higher spare parts sales and MRO activity. Margins improved to 24%, the company said.
Airline traffic numbers are up worldwide, the executives said.
So is this the bright new Boeing world?
Building airplanes but no one makes money anmore?
If Spirit doesn`t make money with a 31 p.m. rate, who does?
And which Boeing program is actually making money?
B737Max doesn`t seem like.
B767f might be working well but the profits there are eaten by the KC46.
B777 is in transition and happy to stay afloat, B777x starts with a debt backpack.
B787 is cashflow positive, but overall that hole is to deep to climb out off. That more than a year delivery break, new issues, and 100 of them on stock will not make the business case better.
And somehow, each program has to earn money, even if you treat development as sunken cost.
By now it seems Boeing would have been better to stop building airplanes, sell everything and become a bank.
That`s a shame for such a legacy company.
Interesting its Boeing fault that Spirit is loosing money on the KC-46A. The production rate has not changed, Boeing is responsible for the program losses and they make the same nose that is on the 777X/777/767.
And yes that is accurate, Boeing elected to use a 767 nose on the 777 (if you look there is a ramp up behind the cockpit into the 777 hull)
Transworld.
Respectfully, the KC-46 nose is unique it is not used on anything other than a 767-2C. The AARP panel in the cockpit ceiling with its refueling receptacle, the LAIRCOM pods and defensive equipment, changing of all grounding and bonding points to be explosion proof as well as adding the fuel plumbing provisions are the biggest points. The pedestal is different as there are no thrust reversers found on the tanker. There are added fluid tight sealing requirements above the belt line and the corrosion protection plan is different. And theres so much more……
The P-8 also has a refuelling receptacle in nose section above the cockpit, but still built on same production line ( it also has an fuselage belly weapons bay).
Are you sure that Spirit fits all the 767 cockpit instruments and fittings to its structure before shipping to Boeing?
They used to just make the nose section ‘panels’ and rail them to Everett for Boeing to make a complete structure . Now they do the whole nose section and the Dreamlifter takes them
this shows how
https://www.youtube.com/watch?v=aEkW_mUg4co
Duke.
The P8 is assembled in Renton in its own seperate ITAR compliant assy facility. It is not intermingled on the max line.
The 767 noses from Spirit are structures only, not stuffed. The entire 767 assembly bay is ITAR compliant.
The final assembly at Renton yes.
Renton also uses a single ‘old’ wing jig to make the P-8 wings to the different spec, compared to the new wing assembly process bought in for the Max
The interior fitout is done at nearby Boeing field as not much commonality with standard 737
The fuselage production process at Wichita by Spirit doesnt have a separate P-8 line . They have just identified the parts of the airframe that are structurally different function ( mainly the cockpit refuelling aperture , the belly weapons bay ) and those are ‘swapped in’ as the complete fuselage moves through the different stations
“So is this the bright new Boeing world?”
Yup. Seeing is believing.
“Spirit said it delivered 69 Boeing 737 shipsets during the third quarter — 23 a month — compared to 47 shipsets in third quarter 2021.”
So now we know for certain: the recent/current 737 build rate falls VERY short of the “broadcast” 31 p/m (see link).
https://investors.boeing.com/investors/fact-sheets/default.aspx
> So now we know for certain: the recent/current 737 build rate falls VERY short of the “broadcast” 31 p/m (see link). <
Indeed. Thanks for providing a pertinent quote and link,
so others can easily examine just what's been said.
What is relevant is the delivery rate. As we have seen, you can spin the build rate any way way you want (see Airbus)
Spirit had a backlog of MAX fuselages built and in the medium term the fuselage delivery rate will be close to the MAX delivery rate.
For now, the system is settling out including deliveries out of the built MAX aircraft. Those in turn had a hold on the Chinese built ones that Boeing is now working on selling.
Airbus was claiming they would hit a build rate of 50 x A320 series a month for 2022. That is 13 more than they are delivering a month (average though that has held steady for the quarter). That is a heck of a LEAP they are going to make.
Unless a situation is stable, you won’t see stable numbers. Airbus is trying to ramp up so the math will not be firm though its suspicious at a steady 37 a month for some time.
Once Airbus does ramp up then the numbers would increase each quarter.
So while you can’t say exactly what they are you can start to see the trend.
Not rocket science. Its not even Algebra. Simple division.
Q3 averaged out at deliveries of 29.33 MAXs per month. Since that includes many whitetails, the actual production number drops to the low 20s.
Same story in October.
IIRC CFO West has to admit the MAX was somewhere in the 20s in Q3. Of course, in a typical fashion, supply chain is their scapegoat.
Bryce.
Spirit built a large number of 737 fuselages for BA and amassed a parts buffer in Renton. There was never a clear (to me) description of how large this buffer was, and if it has been consumed. Until we understand the disposition of the fuselage parts buffer , saying that BA is short of their broadcast number by using Spirits production number alone lacks the certainty you are attributing to it. While for different reasons, I think BAs broadcast number is questionable, using Spirits build rate alone to drive this point home has too many unanswered questions as long as the parts buffer remains undefined……..
And BA used (a large portion of) those Spirit shipsets to manufacture frames that then got parked while the grounding dragged on…
Bryce
I agree that some of the fuselage buffer was consumed. But that gets us back to certainty, and absent an accounting of the fuselage buffer quantity, a statement of certainty cant be made….. I have reasons not commected to Spirits delivery numbers to doubt BAs broadcast numbers, I just have to question your use of the Spirit number alone to get there…. Have a great day
I think pnwgeek makes a good point here- a clear and honest one. There is no doubt about what he’s claiming; he does not go off
in seven different directions; and he’s not obscure in his claim. All the basis of good, honest argument, so I thank him.
I agree that it’s a fair point.
I’m hoping that Scott may be able to provide some info on the number of previously-delivered Spirit shipsets that have not yet been assembled.
At least we’re all in agreement that the 31-p/m figure from BA is fishy.
> At least we’re all in agreement that the 31-p/m figure from BA is fishy. production here< , not deliveries.)
Muddying conflations are unwelcome.
That’s super-weird; it happened
again.
As it stands is ok, though.
> I’m hoping that Scott may be able to provide some info on the number of previously-delivered Spirit shipsets that have not yet been assembled. >production<<, for this moment) is getting a clear understanding of how many 737MAXs Boeing has been recently producing, as compared to
various production numbers that have been bandied about through this year.
Deliveries are a different topic.
What was posted above is (curiously) not what I wrote, somehow omitting the gist of my question.
I hope to find out how many 737MAXs Boeing has been producing (not delivering, which is a separate topic) this year.
Actually deliveries are the topic as that is what Boeing gets paid for.
Airbus as well.
Longer term it all stabilizes out between built and stored and the Chinese ones that they won’t take theirs (more accurately can’t the way the big 3 there are loosing money hand over fist)
I have to laugh that Pnwgeeek gets homage for the point I made earlier, there was a stack up of MAX fuselages (and don’t forget the P-8 production which will be NG fuselages but also out of the same plant so those count as well as do the KC-46A though its a different nose and fuselage from the 767F).
And no, I have no issues with Pnwgeek, my hat is off to him for actually bringing things to the discussion other than Boeing bashing.
Stop conflating the two, TW: I’ll decide what *my own comment* is carefully limited to, Thank You Very Much.
[Edited for violating Reader Comment rules, again. Suspended for 7 days.]
@Bill7
Might I suggest that you just (largely) ignore posts from commenters who “get under your skin”, and instead concentrate on posts from commenters with whom you can have a smoother rapport? It would prevent a lot of pointless bickering, and would make life easier for Scott.
Thanks @Bryce, but I will remind everybody that Scott can make Scott’s life easier by simply banning the repeat offender. I’ve done it before and I will do it again if necessary.
Scott
@ TW
Actually, at present, the build rate ** IS ** more important than the delivery rate, because we’ve already established that BA is making very little (or even zero/negative) margin on deliveries from inventory. New-build frames (nominally) fetch a higher price than frames from inventory, and they thus make a more significant contribution to BA’s earnings.
As regards “Boeing bashing”: I don’t see any “bashing” here — I see people discussing the pit that Boeing *has gotten itself* into, and the possible strategies that might be available to rescue itself from that pit.
On the other hand, there is a lot of “Boeing denial” going on 😉
Transworld.
Respectfully, the KC-46 nose is unique it is not used on anything other than a 767-2C. The AARP panel in the cockpit ceiling with its refueling receptacle, the LAIRCOM pods and defensive equipment, changing of all grounding and bonding points to be explosion proof as well as adding the fuel plumbing provisions are the biggest points. The pedestal is different as there are no thrust reversers found on the tanker. There are added fluid tight sealing requirements above the belt line and the corrosion protection plan is different…..
Pnwgeek:
Egads, I forgot, you had put that out before. I can see the upper is major modification.
I know it has 787 glass panel type and i.e. the same functions per the FedEx MD-10 conversion?
That also means lots of gauges and controls are no longer there if I have that right.
I do know the KC-46A guys speak in awe of how huge the improvement is over the KC-135R (I have not seen any reports from the A330MRT pilots for a comparison yet)
I would think the form and lower 2/3 are 767 as well as some of the upper front.
The $64 question is what the issue for Spirit is as nothing has changed in the KC-46A program. Rate of production is the same as it has been for some time
Not so . The Youtube just shows an upper cabin outside panel is different for a 767F and KC-46 ( and different interiors but that seem to be a Boeing job)
They do the same for the P-8 which comes down the same Spirit fuselage line as all the other 737s
> Ending the pension – which killed Spirit’s profits in the quarter – will add between $120 million and $150 million to the bottom line next year, the company said. <
I'd be interested in hearing more about Spirit's ending of its pension plan, and the reasons for.
Is it possible that the ending of that plan is one reason Spirit's having trouble retaining humans to work for them?
Well Spirit gets to build 10 more KC-46A noses than planned, that should be a real boost (well add in another 160 or so KC-Y tankers).
https://www.aviacionline.com/2022/11/italy-is-negotiating-the-purchase-of-six-boeing-kc-46a-tankers/
Interesting the Italians are sticking with the evil 767 setup. You have to wonder if they know things that make it the better choice?
https://en.wikipedia.org/wiki/Boeing_KC-767
Already in use and seem to be happy with the older version…eventually
The Japanese also went for the KC-46A, because they’re already using the KC-767.
Japan is also ( still) a major supplier of airframe sections for the 767.
Have any of you seen this announcement:
https://theaircurrent.com/analysis/boeing-passes-the-long-haul-a321xlr-torch-airbus/
Calhoun major announcement today of not going forward with a clean sheet until the NEXT decade, 2035! They will focus on design and production improvements until then.
Many of us predicted this and for reasons previously discussed.
Imagine where Airbus will be in 2035.
This speaks volumes about the reality of Boeing’s situation and looks as tho the mad max relic will be with many airlines for years to come.
If you’re an airline CEO, with this announcement, would you get in line for a future with a superior airframe or continue ordering a 55 year old design?
But then again it’s all about the money.
Longhaul NARROWBODY !
Leehams analysis of the Boeing NMA options a while back astutely leaned towards a small widebody as the best bet for the new model.
Have you considered how old the A320 series is ? Airbus consortium looked at their single aisle design studies from 1980
BA won’t be offering any cleansheet design — narrowbody or widebody — until the 2030s.
https://mentourpilot.com/boeing-no-new-aircraft-launch-in-the-next-two-years/
The A321 indeed stems from an 80s design, BUT at least it has:
– FBW;
– ECAM (EICAS);
– Containerized cargo;
– Wider seats / aisle;
– Enough ground clearance to add an even wider turbofan, if needed;
– And unique LR and XLR versions that are a winner with airlines.
Personally, I prefer making long journeys in widebodies, but the world is changing in that regard.
@Duke
Yes I’m very aware of the age on the A320. My focus is Boeing looks as tho it’s staying with their old design derivative’s until the next decade with this announcement.
Narrowbody flights have been going on for quite some time now both trans Atlantic and trans pacific (Hawaii) with 757’s and Airbus. Many operators use the NG and mad max for Hawaii ops. So my point is narrowbody are here to stay.
I’ve flown a number of times in the A321 and for a narrow body much more comfortable than that 757 or 737…. Squeezed tight.
Scott, my apologies for going off topic.
Yes. The flight controls are from an earlier era.
The wing itself is newer improved aerodynamics than the A320 and was the main reason it gave a lighter airframe ( for the same number of seats) and more fuel capacity ( without centre tanks).
The low wing setting was also an disadvantage for newer high bypass turbofans but LEAP was able to largely overcome that with a different core for the Leap-1B version which got back most of the disadvantages of its smaller fan size.