UPDATE: Spirit says 737 manufacturing errors will disrupt deliveries through July

By Bryan Corliss 

March 3, 2023 © Leeham News – The manufacturing errors its team made on Boeing 737 MAX fuselages will cost Spirit AeroSystems at least $31 million to fix, with work on the units still at the Wichita factory going on until the end of July, the company reported this morning.

But that’s just the start, Spirit executives warned.

“Additional costs are expected, including costs Boeing may assert to repair certain models of previously delivered units in their factory and warranty costs related to affected 737 units in service,” the company said in its quarterly earnings release.  

The time and cost to make those repairs will have to be determined on “a unit-by-unit analysis,” Spirit said, adding that it “cannot reasonably estimate the remaining potential costs at this time.”   

Repairs to the fuselages on hand in Wichita will cost $100,000 to $150,000 each, the company estimates. Spirit has revised its manufacturing process and implemented new quality controls, the company said.

Overall, Spirit reported an operating loss of $95 million for the quarter, which more than doubled its losses in the first quarter of 2022. The growing losses came even though Spirit increased revenues by 22% year-over-year, to $1.4 billion. 

Spirit said that since the close of the quarter on March 30, it has received $230 million in cash advances from customers, of which $180 million has come from Boeing. It will receive another $50 million in advances later this year. Spirit is to repay those advances in 2024 and 2025.

  • Some 750 737s to be inspected, may need rework
  • Spirit to increase 737 rates in August, October
  • Deliveries to Airbus to be down this year
  • ‘Fragile’ supply chain remains an issue  
  • ‘Primary object is to reward our IAM colleagues’

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UPDATED: Boeing says it still will deliver up to 450 737s this year

Boeing Co. photo

By Bryan Corliss

April 26, 2023, © Leeham News — Boeing says it will increase rates on the 737 line in Renton to 38 a month to maintain its plan to deliver between 400 and 450 737 MAX jets to airlines this year.

That was the first line of the company’s first-quarter earnings release, which showed Boeing lost $149 million on the quarter, on revenues of $17.9 billion.

Boeing had optimistically aimed for jumping MAX rates from the current 31 a month, as soon as June. However plans for the 737 line had been in question, after recent revelations that manufacturing problems and a software issue would cause delays in deliveries.

  • ‘Gnarly’ 737 defect to take weeks to fix
  • Boeing commits to MAX increases
  • Improving numbers at BCA
  • Supply chain issues continue, Boeing says

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Howmet taking cautious approach projecting OEM deliveries for 2023

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By Bryan Corliss

Feb. 15, 2023, © Leeham News – Howmet Aerospace is taking a “cautious and conservative view” that Boeing will build 30 737s a month this year and Airbus will build 53 or 54 A320s and A321s.

That’s what CEO John Plant told investors Tuesday, as Howmet reported its year-end and fourth-quarter earnings. 

That’s far more conservative than the 737 build rate that Spirit AeroSystems had projected the week prior, Plant acknowledged. Executives with the Wichita airframer project sending 42 737 fuselages a month to Boeing by the end of this year.

Howmet, which fabricates fasteners and casts pieces for aerostructures and jet engines, reported annual profit of $1.3 billion for last year, up 12% when adjusted for one-time items. For the fourth quarter, its adjusted profit was $336 million, up 13%.

  • Howmet ended last year with excess inventory
  • Company still projects 17% growth in Commercial 
  • Howmet hiring, but not everyone is sticking around
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Spirit gearing up to produce 42-a-month on 737 program by the end of 2023

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By Bryan Corliss

Feb. 8, 2023, © Leeham News – Spirit AeroSystems plans to deliver 42 new-built 737 MAX fuselages a month to the Boeing Co. by the end of this year, executives said Tuesday. 

Whether that’s how many 737s Boeing is delivering to customers is not for Spirit to say, CFO Mike Suchinksi told analysts during the company’s year-end earnings call.

“What Boeing delivers to their customers is, we have no purview. That’s on the Boeing side,” he said. “We’re just trying to communicate to you what the contract schedules have been and what we expect to produce internally and what we expect to ship to Boeing and to get paid for.” 

But Spirit and its suppliers still have major challenges to overcome before they can get to those higher rates, Suchinski and CEO Tom Gentile warned. The company, which struggled through a tough year in 2022, is making major cash outlays in early 2023 to acquire the people and materiel it will need to reach those higher rates, and that will weigh on profitability for the next few quarters.

  • Losses doubled in fourth quarter
  • Outlook: 420 737s and 650 A320s
  • Some suppliers in ‘deep distress’
  • Spirit hiring, but new workers need time
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Hexcel reports increased demand for aerospace composites as industry rebounds

By Bryan Corliss

Jan. 27, 2023, © Leeham News: Composites materials supplier Hexcel Corp. reported that its fourth-quarter sales were up 29% over the same period last year, driven by increased demand from all across the aerospace industry.

“Virtually every platform from narrowbody to widebody to business jets is growing, and the customers continue to ramp as fast as the supply chain allows,” CEO Nick Stanage said.

As international air travel recovers, airlines are seeking more widebody jets, which is good for Hexcel, because newer widebodies have higher percentages of composite materials, Hexcel executives told investment analysts. However, new business jet and military aircraft models also incorporate higher percentages of composites.

Stanage and Hexcel CFO Patrick Winterlich noted that their company is not immune from the inflation and labor issues facing most manufacturers, but said they’re coping.

“You can’t give someone five years, three years, of experience in six months or nine months,” Stanage said. “We are working as hard and are focused as hard as we can on training and accelerating it.”

 

  • Hexcel profits beat Wall Street expectations
  • Analysts: Can Hexcel match Boeing ramp-up?
  • CEO: Commercial aerospace can withstand recession

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GE, Raytheon report orders surges, but labor and supply chain headwinds

By Bryan Corliss

Jan. 24, 2023, © Leeham News – Aerospace suppliers GE and Raytheon both reported fourth-quarter sales surges, as the commercial aviation industry continued its recovery from the worst of the Covid pandemic. 

Both companies also project strong sales growth in 2023, but warned investors that there are lingering supply chain issues and labor shortages that could hold them back.

“While we are broadly beginning to see our supply chain improve, it is not yet at the levels we need,” Raytheon CFO Chris Calio told stock analysts during the company’s fourth-quarter earnings call on Tuesday. “We are assuming a recovery as we move into the back half of the year.” 

  • GE reports backlog near 10,000 for LEAP
  • Raytheon expects double-digit growth for Collins, P&W
  • Supply chain improving, but still tangled
  • Raytheon talks about Boeing, Airbus rates
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NTSB issues critique of Ethiopia’s final report of Boeing 737 MAX 2019 crash

By Scott Hamilton

Dec. 27, 2022, © Leeham News: The US National Transportation Safety Board (NTSB) today issued a critique of the newly released final investigation report of the Ethiopian government of the March 10, 2019, crash of a Boeing 737 MAX.

Ethiopian Airlines flight ET302 came five months after Lion Air flight JT610, a MAX, crashed. Both accidents began when the Maneuvering Characteristics Augmentation System (MCAS) activated following a failure of the single Angle of Attack (AOA) sensor to which it was tied malfunctioned (JT610) or failed (ET302).

Boeing issued a notice to MAX operators after the Lion Air crash outlining proper procedures pilots should follow in case MCAS erroneously activated again. The Ethiopian government investigation placed the blame for the crash on Boeing. The NTSB’s critique concluded the pilots failed to follow Boeing recommendations and should be partly held responsible for the probable cause of the crash. Had they followed procedure, the NTSB concludes the pilots could have successfully flown through the emergency.

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Pontifications: Some Boeing product development engineers reassigned to 737, 787 lines to fix problems

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By Scott Hamilton

Nov. 21, 2022, © Leeham News: When Boeing CEO David Calhoun told his audience at the Nov. 2 investors day (and all those watching on the web) that there will be no new airplane introduced until the middle of the next decade, it was a shocker to some.

Wall Street analysts and investors loved the news. There would be no spike in research and development spending. Free Cash Flow—which is seemingly all that matters to analysts—was forecast to be $10bn by 2025-2026. Returning money to shareholders seemed to be restored as Boeing’s No. 1 priority. The stock price went up 18% in the week after the news.

Calhoun said there would not be a new engine before the middle of the next decade that would support the development of a new airplane. Calhoun ignored advances in airplane/wing design as a contributor to reducing fuel burn, however.

But, as the late radio commentator Paul Harvey used to say, “now, for the rest of the story.”

Since the Nov. 2 investors day, the first since 2018, LNA quickly learned that there was more than expressed at the investors day event.

Summary
  • While officials pointed to continuing production challenges, mostly fingering the supply chain, this is only part of the story.
  • Quality control slipped not only at the Charleston 787 factory, as has been widely reported. It remains an issue even today.
  • Quality control is also a problem at the 737 Renton and 767 Everett factories.
  • Quality declined in part because there are so many new hires to replace retirements, early buyouts, and layoffs. These new hires have a learning curve required that slows production and makes quality control challenging.
  • Product Development engineers diverted to 737 and 787 production to resolve issues.

In the meantime, Calhoun purchased 25,000 shares of stock on Nov. 8 for approximately $3.87m. Insider purchases like this typically send a message to Wall Street and stockholders that the CEO (or whomever) has confidence in the company’s future.

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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

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UPDATE: Calhoun upbeat on cash flow despite fifth consecutive quarterly loss

By Bryan Corliss

Oct. 26, 2022, (c) Leeham News: The Boeing Co. posted a loss from operations of nearly $2.8 billion for the third quarter, citing losses on fixed-price defense development programs that offset an overall 4% growth in revenues.

The consensus of Wall Street analysts earlier this week was that Boeing would announce profits of 13 cents a share and would break a streak of four consecutive losing quarters. Instead, Boeing posted a loss of $5.49 a share.

However, in a conference call with stock analysts later in the morning, Calhoun was upbeat, emphasizing Boeing’s positive operating cash flow of nearly $3.2 billion for the quarter.

“This quarter was a big one for us,” he said. “We hit a marker … to generate positive cash flow.”

Boeing booked losses of roughly $1.95 billion on two defense programs, CFO Brian West said: KC-46 tankers and new Air Force One presidential transports. Both are fixed-price contracts for commercial jet conversions that forced Boeing to eat any cost overruns.

“We aren’t embarrassed by them,” Calhoun said. “They are what they are.”

But in an interview with CNBC’s Phillip LeBeau Wednesday, Calhoun said Boeing will not do fixed-price defense contracts in the future. “That is not our intent.”

Summary:
  • BCA: 737 and 787 deliveries resume; engines in short supply
    BDS: ‘Labor instability’ hurts key programs
    Calhoun: Boeing ‘supports China’ but is re-marketing planes
    Read more