Howmet Aerospace Exhibits Strong Revenue Growth Driven By Commercial Aerospace, Girds For OE Rate Increases

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By Chris Sloan
Nov. 1, 2023, © Leeham News : Howmet Aerospace reported third-quarter revenues of $1.66bn, up 16% year over year, primarily driven by growth in commercial aerospace of 23%. Overall, the company achieved an improved margin of 23% EBITDA, propelled by surging demand from OEs across all three aerospace segments: Engine Products, Fastening Systems, and Engineered Structures.

 “Commercial Aerospace has grown for 10 consecutive quarters and stands at 49% of total revenue. Its growth continues to be robust, supported by demand for new, more fuel-efficient aircraft as well as increased spares demand,” proclaimed John C. Plant, Howmet’s Executive Chairman and Chief Executive Officer

A chorus of analysts agreed Howmet beat consensus “This was another quarter where Howmet’s results stand out relative to its commercial aero peers, especially compared to other OE [Original Equipment] suppliers. In 3Q, Howmet delivered beats on sales, margins, EPS, and raised its guidance for all three metrics,” said Melius Research in a note. “What is arguably more impressive is that Howmet did this in a quarter where the operating environment was far from smooth.”

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Q3 Could Be Boeing’s Reddest Earnings Report This Year

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By Dan Catchpole

A Boeing T-7A Red Hawk aircraft sits on the tarmac after delivery to the U.S. Air Force.

The U.S. Air Force accepted the first of five T-7A Red Hawk test aircraft from Boeing on Sep. 14th. (Image courtesy of USAF and Boeing Co.)

October 23, 2023, © Leeham News: Wall Street analysts expect Boeing to post its biggest quarterly loss of the year when it reports its third quarter earnings on Wednesday. The company’s commercial and defense divisions continue to struggle with rework, slow work, supply chain snafus, and other challenges for both its commercial and defense and space divisions. Those divisions’ losses likely will be offset somewhat by Boeing Global Services, which continues to be a bright spot on the company’s otherwise blood-red ledger book.

Analysts aren’t expecting any big surprises, just more of the same financial dark clouds that have been camped out over Boeing in recent years. They expect Boeing to announce a loss due to well-known challenges, especially with its 737 and 787 programs, as well as ongoing struggles within Boeing Defense, Space and Security. In recent research notes, investment analysts have forecast BDS posting a loss between $475m and $500m for the quarter.

Across Boeing’s divisions, Wall Street expects the company to book more than $1bn in losses. Projections vary by as much as $1bn. At the low end, TD Cowen expects a loss of just under $900m. At the other end, Bernstein projects about $1.85bn in losses. In either case, that would be the biggest loss since 2022’s third quarter, when Boeing posted a $3.3bn loss.

Summary:
  • BCA continues to struggle with the 737 and 787 programs. It just announced a price revision deal on those programs with airframe supplier Spirit AeroSystems.
  • BDS is expected to post more charges due to ongoing struggles with new and mature programs.

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Analysis: With Gentile out at Spirit, here’s what Shanahan’s hiring likely means

By Bryan Corliss

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Oct. 2, 2023, © Leeham News – Tom Gentile is out as CEO of Spirit AeroSystems, the victim of a number of serious production missteps and a failure to lead the Tier 1 supplier into a stronger position following the Covid-19 pandemic and the grounding of Boeing’s 737 MAX. 

Interim Spirit AeroSystems CEO Pat Shanahan.

The new interim CEO is Pat Shanahan, a long-time Boeing and Pentagon executive who has been serving on Spirit’s board since 2021. 

Spirit said its board is conducting a search for a new chief executive.

  • Markets respond to news
  • Shanahan faces huge challenges as CEO
  • Shanahan’s resume fits Spirit’s need 
  • Our takeaway: What this means for Spirit’s future

Related Article:


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Analysis: Boeing’s options for Spirit AeroSystem

Breaking News: Tom Gentile, the CEO of Spirit, is out. He’s been replaced by Pat Shanahan, a Spirit Board member, on an interim basis while the search for a permanent CEO is underway. Shanahan is a former Boeing executive and former deputy secretary of the US Department of Defense. This story will be updated.

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By the Leeham News Team

Oct. 2, 2023, © Leeham News: Boeing is in another bad spot with a major contractor and the depth of the problems is quickly becoming apparent.  Spirit AeroSystems in Wichita has been seriously underperforming with inspection escape after inspection escape seriously hampering Boeing’s ramp-up of the 737 rate.

Spirit isn’t making money on Boeing 737s and 787s.  Boeing is charging Spirit for rework, and a glance through Spirit’s second-quarter earnings report was full of items where they did not have a firm handle on their losses and future exposures attributable to operations with Boeing.

Spirit’s repeated quality and production problems led to speculation that Boeing might buy Spirit, to bring direct control over the Wichita (KS) plant back in-house. Spirit was once “Boeing Wichita.” It was sold on orders of then-Boeing CEO Harry Stonecipher. The resulting spin-off, Spirit, remained Boeing’s supplier for all the commercial airplanes then in production. Nose sections were supplied for all but the 737. Spirit produced the entire 737 fuselage and does to this day. Boeing has a workforce in place at Spirit to help sort out the problems.

At the Paris Air Show, Boeing shot down the speculation, saying purchasing Spirit wasn’t going to happen. Since then, more quality control and production issues emerged on the 737. Two-thirds of the 737s in inventory and an unknown of aircraft in service or new production models are affected.

Speculation over the possibility of Boeing purchasing Spirit continued. Doing so would not be simple, even if Boeing was so inclined.

LNA takes a deep dive into the issues.

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Analysis: Labor issues continue to challenge aerospace industry

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By Bryan Corliss

Sept. 18, 2023, © Leeham News – One of the continuing themes we’re hearing – at investor presentations and on quarterly earnings calls – is the shortage of skilled labor, which is disrupting deliveries up and down the aerospace industry supply chain.

The inability of suppliers to deliver parts on time – or to deliver correctly assembled parts – is hampering the OEMs as they attempt to ramp up production to meet high demand from airlines.

This is not just an issue affecting aerospace. There’s a general shortage of medium- and high-skill workers in the Western world right now, with shortages of every kind of worker from line cooks to truck drivers. Shortages existed prior to the Covid-19 pandemic, and there’s still strong demand, even with economies slowing as central banks move to tamp down inflation. 

The issue is more pronounced in industries that rely on high-skill workers – like aerospace.

One outcome of this worker shortage is a rise in union activism. In aerospace, we’ve seen the strike by the International Association of Machinists against Spirit AeroSystems this summer, and the near strike by members of the same union against Boeing’s defense business in and around St. Louis last year.

Next year, both Spirit and Boeing will be back at the bargaining table; Spirit to negotiate with members of SPEEA, the union for aerospace engineers, while Boeing holds talks with IAM District 751, which represents hourly workers at the company’s plants in Puget Sound and Oregon. 

IAM 751, in fact, is urging members to prepare for what it’s describing as a September 2024 contract vote that will “forever change the aerospace industry.” 

The environment seems to be favorable to the unions, for reasons we’ve discussed before. However, with the OEMs and Tier 1 suppliers heavily in debt (and currently bleeding red ink), there’s going to be a limit to what the companies will be willing to offer in a bid to satisfy their labor forces.

  • Demand for workers remains strong
  • Lack of skilled labor is hurting industry
  • Boeing, Spirit aren’t strong financially
  • UAW strike bellwether for next year’s talks

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Analysis: Jefferies presentations show industry hasn’t stabilized post-Covid

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By Bryan Corliss

Sept. 11, 2023, © Leeham News: Negative cash flow in the quarters ahead. Ongoing issues with the supply chain. OEMs struggling to meet high airline demand as Tier 1s wrestle with quality issues. New technology wearing out faster than the old systems it replaced.

The No. 1 takeaway from last week’s Jefferies Financial Group Industrials Conference presentations is that the aerospace industry is still a few years away from being in a stable state capable of meeting the demands of customers and shareholders alike.

“We know our customers really do want to make more,” said Howmet CEO John Plant, whose company casts fasteners and engine components for Tier 1s and OEMs. “The question becomes when can we achieve these improved rates?”

Plant went on to say that he believes both Airbus and Boeing will hit their goals for increased widebody production; Airbus at 9/mo  on the A350, Boeing at 10/mo for the 787. 

The question, he said, is whether the OEMs will hit those rates in 2025 or 2026.

Executives from Boeing, Spirit AeroSystems and Howmet all presented at the conference, and all agreed that there’s reason to be optimistic, given the strong demand from airlines for more planes. 

The issue, as Plant put it, is the industry’s ability to meet that demand. “We haven’t seen the real benefits of increased aerospace production.”

  • Companies discuss latest 737 quality issue
  • Spirit tries to get on track as refinance deadline looms
  • Gentile: Supply chain needs new contract terms
  • Boeing CFO projects losses for next quarter
  • Howmet talks about engine challenges
  • Takeaway: Fundamental demand is strong, but…

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Pontifications: One step forward, two steps back: Déjà vu all over again.

Aug. 29, 2023, © Leeham News: It’s déjà vu all over again.

By Scott Hamilton

Last March, I wrote a piece entitled One Step Forward, Two Steps Back discussing Boeing’s efforts to climb out of the very deep hole dug by the 737 MAX grounding, suspension of 787 deliveries and the pandemic.

I noted that for every step forward, something seems to happen to set it back two steps. (A Boeing official suggested the piece should have been two steps forward, one step back, but the underlying point is made.)

The backward steps seem out of Boeing’s control. But it’s Boeing’s name on the side of the airplane and its Boeing that delivers airplanes to the customers. It’s Boeing with whom customers are frustrated.

The latest step backwards that delays deliveries again of the 737 MAX comes from Spirit AeroSystems. Misdrilled holes for the aft pressure bulkhead are blamed this time. The full extent of the flaw, with impacts, number of planes affected, etc., is still being assessed at this writing. Spirit says a supplier is responsible for this issue.

This follows a previous setback when Spirit found that one of its suppliers provided parts that failed to meet specifications which attached the vertical tail to the fuselage of the 737.

These flaws, revealed within months of each other, negatively impact the delivery of new production 737s and delivery of some of the more than 200 MAXes that remain in inventory due to the 2019 21-month grounding of the MAX.

Before that, Spirit’s quality control on the 787 nose section it builds for Boeing was found to have flaws. Deliveries were suspended for nearly 20 months. Eventually, Boeing had 110 newly built 787s in inventory that require rework. The inventory won’t be cleared until the end of next year.

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Spirit Aero losses, cash burn continue

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By Scott Hamilton

Aug. 7, 2023, © Leeham News: Spirit AeroSystems reported another loss-making quarter last week as more special charges in Airbus and Boeing programs.

Spirit is a major supplier to Airbus and Boeing. Airbus receives A350 fuselage panels, some A320 wing components and the A220 wings from Spirit. Boeing receives entire 737 fuselages and the nose sections for the 767/KC-46A, 777 and 787 from Spirit.

Spirit accumulated more than $2.8bn in operating losses and more than $3.5bn in net losses since 2019, the last full year before the COVID pandemic began in March 2020. The global fleet of 737 MAXes was grounded in March 2019 following two fatal accidents five months apart. Production of the 737 was suspended in the fall of 2019. Deliveries resumed 21 months later.

Deliveries of the 787 were suspended in October 2020 after Boeing discovered tiny gaps in the fuselage joins on aircraft and other, unrelated issues. One of the gap problems—no bigger than the thickness of a piece of paper—was traced to Spirit.

Quality control problems with 737 fuselages were discovered last year and with the vertical fin this year. All Boeing events resulted in charges.

A supplier in the A220 wing program declared bankruptcy and ceased operations, resulting in a charge. Charges were also taken in the A350 program as production was cut during the pandemic.

Airbus and Boeing advanced hundreds of millions of dollars to Spirit to help keep the company afloat. Spirit refinanced $900m in debt last year at an interest rate of 9 3/8%, at the time an above-market rate that indicates the risk factor banks view Spirit.

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Analysis: Spirit strike likely a sign of changing aerospace labor market

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By Bryan Corliss

Striking Spirit AeroSystems workers blow whistles in front of one of the factory gates./Wichita Business Journal photo

July 10, 2023, © Leeham News – In case anyone had slept through all the earlier alarms going off, the whistles and airhorns that sounded during the mercifully short-lived Machinists Union strike at Spirit AeroSystems should have been a wake-up call: 

This ain’t the 2010s aerospace labor market anymore. 

In the labor market of 2023, hourly workers don’t want to come in on weekends. They want raises, and they’re not interested in getting paid in stock. And don’t you dare think of cutting off payments for the prescription drugs their kids need to take to stay healthy.

All this is going to create a challenge for the aerospace industry. For the past two decades, executives have focused on growing profit margins by holding down marginal costs – especially labor costs. 

A decade ago, aerospace companies were able to win labor concessions by threatening to take work away

Today, it’s the workers who seem to have leverage, and OEMs are going to have to figure out how to keep them happy and productive, or explain to the Kirbys, O’Learys and Al-Baker’s of the airline industry why their planes aren’t getting out of the factories on time. 

  • Tide of outsourcing seems to have turned
  • Baby Bust: Fewer workers in the workforce
  • St. Louis, Wichita: Red state Machinists vote to strike
  • What’s next: SPEEA at Spirit, IAM at Boeing

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Machinists at Spirit vote to end strike; will return to work on July 5

Machinists Union members in Wichita, KS, wait in line to vote on a second contract offer from Spirit AeroSystems Thursday. The offer was approved with a 63% yes vote. Spirit will resume production of critical Boeing aircraft components on July 5./International Association of Machinists photo

By Bryan Corliss 

June 30, 2023, © Leeham News – Machinists Union members working for Spirit AeroSystems in Wichita, KS, will return to work on July 5, after ratifying a new four-year contract with the company.

Some 63% of Local 839 members voted in favor of the contract on Thursday, union officials said. Spirit’s first offer was rejected by 79% of union members voting. 

“This membership vote by the majority of 63% is a move in the right direction for our local,” said Cornell Beard, the president of IAM District 70, the parent organization of Local 839. “Let’s work hard to set ourselves up for the big win in four years too.”

In a statement, Spirit leadership welcomed the yes vote, and said they would “closely coordinate” with suppliers and customers as the company restarts production.

Workers will start today preparing for the production restart after the Fourth of July holiday, the company said. The plant has been closed since June 22, the day after Local 839 members rejected the first offer.

  • Strike closes plant for less than two weeks
  • Workers get 9.5% raise this year, plus bonus
  • Second offer ‘what we worked for’

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