SPR - Earnings call transcript Q1 2021 | Spirit AeroSystems Holdings, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Spirit AeroSystems Holdings Incorporated’s First Quarter 2021 Earnings Conference Call. My name is Jamie and I'll be your coordinator today. After today's prepared remarks, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the presentation over to Aaron Hunt, Director of Investor Relations. ahead. go, please Sir,

Aaron Hunt

Chief Mark performance Sam and and earnings Tom, questions. everyone. President take Director call. with Spirit's and Relations. Jamie, regarding Spirit's Spirit's Tom first our President Senior outlook, of to Suchinski; quarter And President are today XXXX I'm me and Executive Executive we good you, Officer, your by and Welcome Gentile; Vice morning, Spirit's Investor Chief Thank Aaron Operating opening Officer, comments and Vice and will Chief Sam Financial Officer, Marnick. After Mark Hunt,

our need Before which filings we risks, today statement forward-looking begin, any remind end and I our likely may are to are we detailed or this the include discussion SEC in web the projections presentation. in at goals in involve that of our to you release, earnings

our you you I use measures and we our reminder, a would our to Gentile. to for addition, investor.spiritaero.com. turn call discussing our Tom and broadcast like website non-GAAP over when earnings In of Executive at Chief and the that, we presentation With slide disclosures can Officer, today's release on follow as reconciliation And to refer presentation results.

Tom Gentile

the to aircraft and Aaron, the the pandemic. Since the we Spirit's Thank service. everyone. of lifted FAA MAX in many and year commercial XXX COVID-XX after and uncertainty XXX grounding disruption quarter morning, MAX resumed and from A you, the and were parts the that the results call. good unprecedented first with Welcome ago, contending order world. the continued other then, Europe is XXX grounding Today U.K., U.S., certified MAX shortly

the worst aircraft down and significant of air from several COVID-XX, impact new airlines, on to XXX Thanks of COVID-XX a Alaska from point large many MAX in than the newly at certified take their global we delivery than the Boeing aircraft near last XXXX of grounded impact. severe tireless The will now had more pandemic more we XX% saw Southwest, industry the who future. and including Additionally, recovery. has secured efforts April. to Ryanair, orders believe XX,XXX traffic first aviation orders has mitigate Air The to path the are

We mark news to routes, TSA X.X above have the travel with million aircraft travelers, recently, we primarily on including continue have travelers encouraging above U.S., to air the since leading last numbers see and million March travel return by way. days commercial staying more early the X been flown million In X.X many domestic the consistently the narrow-body seen checkpoint Sunday.

We have we outlook, Tulsa. Boeing XXX and stored MAX narrow-body our allows in in XXXX. the this Spirit of aircraft shipsets to positioned backlog largest down described for improved is XXX aviation observed in plan of In benefit aircraft. is domestic a from well markets, in XX% trend believe recovery We of air travel to to in is domestic the burn XX-K, planning with narrow-body us that MAX line similar Wichita recovering as produce XXX our the China. given Spirit inventory about This

targeted XXXX. of be second the the outlook, system production number at should we the permanent toward our With cushion to half a current buffer of

closely year progresses. with regular the we'll have Boeing current conversations as any adjustments and the necessary with We environment to on work rate them make

AXXX on versus in be low have to have those the programs. performance, on production pressure pressure will The times adjusted As air as to remains take and longer traffic OEMs levels there increases, recover. place continues. and programs for the wide-body to schedule demand recovery wide-body programs, overall on as relatively Consequently, the our have narrow-body believe plans demand Airbus at experienced is significant expected pre-pandemic rates to air created the and we our programs support our downward. continue Airbus AXXX International still traffic we have

and On charges quality. AXXX, $XX for million bill loss the process improvements tooling to We improve during quarter. and implement contributed that improvements of some production of schedule we to loss forward year next lower The decided rates. year Kinston changes product the included facility at forward this this to period also the our announced this

they Over as the an on conducted engineering had the Boeing At parts a of the other last issues been working aircraft. on result and program. request, few months, of we review analysis we with have also extensive fit-and-finish XXX Boeing's that identified

were areas rework of identified. no issues, there safety-of-flight While were

more we the engineering We delivery have analysis into that place the rework started XXX. will drive in supports provide the detail rework losses from on The the rework plan uneven has Boeing's created loss projected reinitiated of and our put The deliveries will XXX The have and challenges his Mark Boeing $XX the schedule. first during forward of comments. pandemic, million. quarter. a recovery forward

into get $XXX $XXX tax the During half free to $XXX million recovery on to we of million Overall, and performance expected XXXX, traffic to considering million air assuming flow the normalize track. our benefit. start XXXX after expected between year be cash as remains is second cash we usage see the

have all cost have productivity XXXX actions and we we be previously indicated, in expect benefits that our we As to taken. as the the production flow improve we realize rates cash and reduction positive of

and process to Now I'd acquired our like integration the Belfast, Casablanca of to sites. recently Dallas our focus turn

us call Our process the as a on and aftermarket Chief to Marnick I you updates as like her Officer, Operating well give Sam Sam? over to our progress to integration few the would turn has in today business. joined

Sam Marnick

Spirit. to completed newest XX% we have XXX sites and the tasks integration The into of of roughly identified synergies date, plan. capture integrate the to To operations Thank have we you, three progressing is Tom. our

include A remaining Some tasks which integration take focus projected part services we capturing X% to transition of of supply areas chain, the estimate information technology $XX to AXXX the longer $XXX the exiting The Based we large revenues. engineering. are expected as be is such on design. revenues will the costs, of and by plan synergies million, million. be on that agreement wing our synergies focusing infrastructure are XXXX be to we

by million beyond additional $XX XXXX, opportunities. to perhaps XXXX. target on productivity identifying it period exceed and even the are we the are achieve In We

benefit In unions addition, and pension and the we employees our as this consultation and Belfast closing matter. a The it accruals new informal on contribution we with the are evaluating with plan the future close the and plan integration, participants replacing are defined of part evaluating to our plan plan. to current is

part business. of significant strong a this was Another acquisition aftermarket

key Dallas now Our Belfast pieces plan. and of aftermarket sites growth are revenue our

to repairs working to the some traffic near-term, relationships programs. the tooling some sites seen activities to business the to in strengthen customer Belfast air between In and the our of headwinds transfer aftermarket Boeing first and While we've recovers. as COVID-related moving support team combined is including rotables quarter,

assets Our that completed we recently the we further, operations repairs. acquired Aerodynamics, business radome recently Boeing Dallas-based Belfast surface which first XXX their thrust have aftermarket control provides and announced the Applied repair. reverser grow of To flight

of We JV announced us with full Asia which the also in to Taiwan, expanded region. enables EGAT new agreement to signing that repairs in a our suite of provide

revenue business building to our margins actions to XXXX. All accretive million the aftermarket Spirit of at contributing are of $XXX by in target these

over back it I'll Now Tom. to turn

Tom Gentile

Thanks, Sam.

to programs. especially we growing diversification In capacity into excess immediate that addition grow factories, XX% provide expect in we to defense wide-body been repurpose structures defense have produce in into commercial almost The also capacity accelerating aftermarket, XX% After diversifying business our composite us in we our that XXXX, we've with to XXXX. those revenue can defense programs.

mid-XXXXs we We been on billion of new where future record believe to revenue. are on typical projects. with The classified defense for several win by approximately margins. of work We achieve content generate the $X programs we billion revenue have defense positions fortunate will track to have of $X defense

was diversifying in also the business, rate February. notes to this we One delevering to step been period. In have our we accumulated to we've repay $XXX million addition in on pandemic additional floating debt during focused reduce took

Our next XXXX. is in $XXX debt maturity million

positive our We rating. billion three to We debt-reduction repay flow. as also us as with other the along regain credit help these have we will retired generating start could our recover in cash production that debt of objective rates rates part believe $X production increased next and years pre-payable investment-grade actions be

XX.X% progressing operational. automated beam last shipsets in a line spoilers drive narrow-body process In these floor of AXXX resin is using and assembly those lines that discussed margins manufacturing rates the of to also And production the in new to the well. now first margin transfer recover. Prestwick we'll drive we our as Both efforts Our mid-May. Wichita, call, to ship the target molding we Airbus produced our are help of improvement site, back will in

financial Mark call take to you Now, the Mark? I'll turn results. to through our detailed over

Mark Suchinski

morning is good Thank doing and everybody well staying I everyone. you, hope healthy. and Tom

as aviation year XXXX and industry. see a to We continue Spirit our for commercial bridge

the the will the remain wide-body few especially is air in next years, regions is for the domestic While of which aircraft. trending travel for right world sign direction, an encouraging programs narrow-body in headwind a many

have are of our in support customer XXXX, delivery aircraft. rates to During order or our narrow-body to increase planning we production on programs new

as of the half the the be to the to the the expect financial challenging increase. our to back year in year results production expect We first half of improvement see most narrow-body rates and

rates was quarter first was revenue for which pandemic. been have to XXXX the the to to last down impacts XX% under from turn continued $XXX due COVID-XX our quarter lower results. slide to Now, million, due let's primarily international The quarter the resulting body same the traffic the air revenue decrease three, move Please pressure from of reduced year.

the last jet decrease. our wing from some the was Revenue first to In addition, year AXXX rate year. program of Bombardier the in our revenue AXXX offset of wide-body recently this lower programs compared and acquired production quarter helped business

up to XX% year. of bright compared Our be the a defense quarter programs last same spot, to continue as

of of down XXX to shipsets deliveries less first with wide-body lower were was to when main which quarter XX, of in program XX% XXXX. AXXX the XXX were first XXXX decrease XX XXXX, XXXX compared first The a The XXXX. compared in program with program the in reduction. quarter the from the first also Turning of deliveries than XX is driver to the XXXX in deliveries quarter quarter deliveries, the of narrow-body

XXX of XXX quarter Overall, year. MAX the first quarter decreased quarter to XXX to last in The delivered increased compared shipsets the XX in gradually same last shipsets XX first of compared deliveries year. deliveries to shipsets have to

share excludes to This XX.X% negative EPS costs, taken of deferred to share share allowance. the of of Let's EPS to was margin compared abnormal EPS per the first actions with to quarter of negative of quarter negative in period tax XXXX. year. and Adjusted and restructuring, impacts excess charges, on programs by Operating in the per negative first SG&A. to the on lower the non-cash XXXX. losses $X.XX the in $X.XX compared the four. negative $X.XX voluntary compared share the we quarter was period reported past have have We The cost first of the compared slide for forward negative per retirement XXXX turn contributed earnings capacity, COVID-XX, first earnings expenses plan now offset acquisitions, same the additional Adjusted per quarter partially of restructuring $X.XX XX% was XXXX. the improved to XXX including and AXXX last and same valuation

year. interest offset increase quarter primarily quarter, analysis primarily driven and and improvements. and higher rework the interest recognized in costs absence loss we deliveries in XXXX, the charges same increased XXX rates. first rates exchange with expenses driven partially recognized first for on in of the increased to of system a lower voluntary of amortization other million, expense foreign production loss of by higher prior AXXX quality in In $XX and fee and financing the to by support XXXX forward million by on Interest the production debt period quarter coupled rates, Additionally, retirement $XX the compared reflects expense income resumption engineering Boeing's first of the one-time

incremental quarter valuation the of an was deferred on million During assets allowance XXXX, recorded. first $XX tax income

non-cash is item. this a As a reminder,

$XXX to of compared slide Now, period improvement February, flow partially quarter favorable XXXX. offset by working the free five. for primarily use This of received a Free Boeing. turning of is cost-reduction year-over-year last due capital in flow use result the management the absence the to same million a MOA of of $XXX cash was and a the on million, as cash efforts, million with $XXX to,

$XXX Boeing advance flow million quarter the in by XXXX, of $XXX about free of the first payments cash Excluding received improved million.

For cash-tax flow between free This the $XXX approximately and $XXX million. cash negative, expect year, million benefit includes we be to $XXX of a million.

progress most due our single-aisle to we as to rate previously, half that into the expect mentioned first year, we As improvements be the latter believe challenging of increases. of production planned the and XXXX, half

$X.X balances quarter notes on and million cash prepaid turn with we to first billion We and floating In year. ended of the $XXX this of cash were now $X.X February, approximately slide six. debt. due Let's debt rate that billion

pandemic. believe and we mentioned, $X cash and current on flows of timing billion debt line address the vary from rates global structure planning narrow-body years, Tom coupled traffic be We quickly As are repay our the in the liquidity operations, our generated will three provide market. in with sufficient how in cash air to hand ability the to challenges which to next the our from and with recover will opportunities of production cost

could in However, result unevenness in cash fluctuations from period. period flows COVID-XX in the the to our global recovery pandemic from

acquired $XXX the quarter, down seven. XXXX, partially wide-body production defense MAX due and primarily slide on margin offset were performance quarter Fuselage higher on $XXX gross jet revenues. same to approximately segment improvement. the in production contribute for helped compared last XXX increase period compared to in the revenues, was XX%, and the million our volumes programs, revenues to XXX defense turn to profit the recently program the million, by to MAX an let's business Bombardier In negative XX% segment Increased Now year. first negative lower Operating

Boeing of XXXX. programs, The compared in primarily forward reduction costs. offset million XXX the programs, the catch-up and decreases and main AXXX primarily Airbus programs. expenses, of the costs AXXX in and million, catch-up segment COVID-XX revenue of adjustments negative were same wing and quarter MAX improved forward capacity wing and primarily the in the to abnormal segment XXXX. million first million. The net also positive losses recognized Propulsion due to and net contributors restructuring programs due and and losses XXX revenues. adjustments. capacity and by a XXX $XXX profitability. AXXX AXXX recorded the the recently Operating segment margin the quarter recognized from revenue of charges in of revenue to recorded in Fuselage Operating of during unfavorable COVID-XX quarter revenue was lower from X% million the $X program margin negative improvement of $X on profitability lower the favorable charges. and production the losses, acquired for restructuring and to excess the $XX Lower X%, volumes capacity $XXX quarter excess unfavorable on million to operating recognized The million partially AXXX the expenses, aftermarket margin the losses. higher catch-up We of were to of program quarter the for the segment result adjustments in cumulative recorded compared net $XX were costs, $X margin $X on XXX X% X%, million Lower positive driver segment quarter the to main was to The forward AXXX AXXX due cumulative increased forward of abnormal excess and cumulative

The a of to to very provided first be quarter start challenging year. the XXXX

beginning While we precise recovery around positive uncertainty traffic in see trajectory pandemic the remains, to domestic the of air signs demand. are

positive in should momentum point this flow We to and progress is rates a aftermarket see on over past Cash priority diversification pleased day-to-day our is year into narrow-body made in of Higher create few team are a our half efforts. the activities. our back and top growth defense the focal for XXXX. the the year months

MAX delivery dependent of on cash the XXX, Our XXX shipsets. flow approximately is planned XXXX

With I'll comments. over service, monitoring needed return it We the from MAX back for Tom are closely global recovery approvals some as as that to the well regulatory turn the pandemic. for closing the to remaining XXX

Tom Gentile

Thanks, Mark.

quality. First of managed was XXXX investments we wide-body improve have made we challenging, quarter as that the reductions and through rate to

XXX said, a expect As as In improve. shipsets will our and in the we had China, travel than backlog cash a MAX this are more higher benefit to we double With of delivered is we just XX% since of production US what Mark first will to XXXX. about the expected. Spirit narrow-body than result in in rates deliver domestic XXXX, narrow-body rate XXX, trend, continue we planning usage from is which faster recovering we aircraft. that quarter,

flow the our million million. We $XXX and cash will year be expect free usage $XXX for between

that believe are cash also course we We still to on be flow XXXX. in positive

is efforts with of The diversification Aerodynamics continue after margins. grow will in and the in million revenue in and aftermarket accretive to of accelerate year, of Our help with aftermarket Applied establishment our at track $XXX XXXX our the nearly growth XXXX. the growth assets to Taiwan JV businesses. XX% business EGAT on of defense believe business XX% We the defense by the growing acquisition this

We our continue driving questions. delever happy that and also efforts toward margins continue to to of your be With on progress make to XX.X%. good take we'll to

Operator

and the go Melius Ladies from we your will at question gentlemen, Copeland question-and-answer with session. this Carter [Operator first Please Instructions] ahead comes today question. Research. begin from Our time

Carter Copeland

team. Hey, good morning,

Tom Gentile

Good morning, Carter.

Carter Copeland

Tom question, a on clarification Just this. just a

on to forward Boeing? any just XXX fit-and-finish you simply those are wondering you that way it's related guys fit-and-finish issues potential specific the there recourse of broader have and kind if as don't or broader or guys those the issues, issues, schedule a do quality have are On specify, to sort longer they there's problem if I'm any get can problem? recourse your at loss you of term, these

Tom Gentile

XX, issues which is These the the are Section forward on our Fuselage. our section,

sections of XX, the we the fit-and-finish request, different on that the had that we other similar aircraft. some Boeing's we at So identified areas did issues of audit build all and an identified Section they

those that quarter is to related section. the but forward on to doing our the on related And that we rework this rework the rework us loss units so reported and

Carter Copeland

make… to want I Okay.

Tom Gentile

recourse in no se there's that So per sense.

Carter Copeland

clear. That’s Great. Okay.

Okay. Thanks. I’ll one stick to question.

Tom Gentile

All Thanks, Carter. right.

Mark Suchinski

Carter. Thanks,

Operator

Our Walton next with Please your question question. from comes go UBS. ahead Myles from

Myles Walton

left Thanks. I'll where Carter pick up off.

rates? And the charge rate of Is AXXX, about you paid the it onward? is. also, can inclusive three assumed from is Airbus, duration think the On $XXX there, $X.X pay lower you And I just next or you million mentioned on I'm the the billion took over the down you clarify down, rate it signal years. signals XXXX is debt the just that from of the about just curious, billion or the production what $X

Tom Gentile

Well, right. the All I'll one. take first

because the about related to the the an forward And schedule On Boeing, this stated next of AXXX the out this doesn't changes. about pull rate was in And schedule. of schedule did half out units though And as forward the program loss the next of XX both some is those AXXX of not year case was $XX of when point are doesn't change – quarter. our Airbus loss same, talk this mean year, that the and forward it the rate, and they they the might million X interesting on the change. caused but stayed about it on even AXXX or units even just kind but loss Airbus in in year schedule the rates, from

number end or change. just producing as the common very rates they so of – aircraft up vacation or any production things, of schedules not because might change, the And could but furloughs therefore fewer it's and be that's rates

next units amount rate then So but that the of on I'll happened year this the asking did year. is what us didn't The AXXX. on And the and change – that's from Airbus change,

Myles Walton

Tom. Sorry,

Just to kind of clarify.

there's to floating just Is change that they're blank fair? So duration rate. that rate of and the no through the but

Tom Gentile

but from change, they are us. requesting aircraft The fewer just rate didn't

of three a have in. two spaced might they or So furlough weeks

of essentially it's way the think right. blank. That's That's yes, it. So exactly to

Myles Walton

Thanks.

Tom Gentile

Mark, quickly then on -- just could maybe you question the And debt

Mark Suchinski

and production was sure. production schedule been the all has monthly the fairly with AXXX. Yeah, just the rate airlines on Myles what you're and adjustments small at that going historically rates, higher consistent. that's With some really pandemic have of these the in the seeing on – an volatility Yeah, impact the the

explained it well. Tom think I quite

just As prepaid the it billion it first the starts $X quarter. million here relates that in to the we debt, $XXX the with

call next plan we So that $X about another got it means million of the debt. to and years, as billion half $XXX to we've go our three-year pay two think over down

Myles Walton

much. so Thanks

Operator

Sheila Please question with Jefferies. next go Kahyaoglu question. from our comes your from And ahead

Sheila Kahyaoglu

morning, Thank Good you. guys.

Tom Gentile

Good morning.

Sheila Kahyaoglu

In Can you about cash $XXX QX we flow? talk used million. free

to Your million guidance million year. $XXX is $XXX the for

remarks the cash the rates free when narrow-body a breakeven You with of about MAX income that flow mentioned on per are operating or there Is that you a helps free cash side it. we to to in your bridge Whether lot month? do prepared flow production in guidance? think terms it's

Mark Suchinski

things. structure We've where the improvements line this about XXX when a Sheila. and on XXs morning, very talked breakeven and and we rate the of in of can high our XXX we in definitely help about today that built into cash calls XXs that few side that we're the at to Good that, like a past some times is Yeah. is If the us and the cost will low look really component helpful efficiencies thinking upper program. on really, a flow the we've factory the obviously earnings on to and get

Sheila Kahyaoglu

Thank Okay. you.

Mark Suchinski

Have a day. Okay. good

Operator

from your Our with comes David question. from ahead go next Barclays. question Please Strauss

David Strauss

Good morning, everyone.

Tom Gentile

morning. Good

David Strauss

of So wanted kind the Tom, on the on just MAX, reconcile – to this.

XXX. saying you're So

produced be over XXX. like XX. some given was down. look looks producing XX Boeing's like down XXX only delivered or we they shipsets produced burned you of airplanes? hold something And think while – course actually just there I first that what would visibility last like year Boeing XXX has produced can my you talking Thanks. perfect to. of you're rate you It touch you guys idea around was And doesn't about the question on also if it then I the – in have the could Boeing given and – like inventory QX that number had the any into because So burn that's guess, actually

Tom Gentile

Right.

million free producing for year. the on million is on the XXX So, described our units really of us this MAX, that cash plan $XXX outlook $XXX based flow to we including have

so, producing units in in going said be the Wichita months here in for past, fewer that's we as inventory the burn over time, or XX Boeing we're the next Tulsa. down to than we Now, and

their So, production are said get XXXX. early to Boeing that XX to up rates by has going

we And XX said remarks, the to buffer. lag we'll and them that we a use will get in level for as target in So the continue the about units a permanent system. burn down of my buffer to I will production down cushion buffer that as

So will that as disruptions. we way, we forward, go avoid

so, with this And that's about million it we XXX supports to just around that million clear that units year wanted everybody But the to up. be way, of the a lines to we're plan Boeing building flow. our delivery $XXX free and production cash $XXX

engineering the and about this And there the held production though have even asked rates. to some rework, our was we On XXX, there's schedule. you analysis

was units we QX are our and schedule what also deliver in in So we deliver. the And XX to holding schedule to that's did QX.

that new this So, schedule meet the schedule and on we year. quarter for track still changed are schedule, remainder to on the of and build that Boeing hasn't the

David Strauss

Thanks very much.

Tom Gentile

you. Thank

Operator

Seifman comes from from go question question. your JPMorgan. next Please Our Seth ahead with

Seth Seifman

much, very good Thanks morning. and

Tom Gentile

morning. Good

Mark Suchinski

Good morning

Seth Seifman

following the related to and up stuff firm, certification subject XXX your were MAX, that, change? to changes is that is last that for the is that Just with at Boeing like plan one or there timing extent on that to

Tom Gentile

rare schedule time are Well, and any changes not in time, relatively production on there's typically lead those. and typical significant we're a

the were there Now, year, last lots changes pandemic programs. the on with of all

that's still, now. already. But There's change schedule not in May it's recovered. uncertainty the traffic a could we're And that schedule has Air we still there. very completely because environment. have out so, right dynamic And the

that's traffic again, so the has with uncertainty pandemic, that's could we with. they're indicated that And Boeing of the change. with and all in working And it planning. terms what what But air are still recovery

said domestic in in remarks, for the encouraging we US which China, good as opening signs of are some is seeing in narrow-bodies. Now the we travel and

to Europe uneven. hand, other still the On seems be

could a year. this confidence in change, we of it the have be reasonable the the that to going remainder to for hold at point but So, we the that's year schedule of degree

Seth Seifman

much. very Thanks Okay.

Operator

comes next question. go ahead Our question Please Credit with from Robert Spingarn from Suisse. your

Robert Spingarn

the think to Hey. in XX, numbers seem Tom, the ramp per to for and XXX just if sticking XX less would than me year, the aircraft or you if QX us, given that linearly, you'd quarter, I the exited XX, per about more that with go overproduce. the something all month and where about it can't you three than maybe up two really close you've

about than build I thinking Am You'd correctly? that more XXX.

Tom Gentile

I that think a what up in correctly limitations about can thinking has Well, go system about fast is like it absolutely ours you're production how certain rate.

planned these so, are are they out this well. And typically, years in advance. in And case, as things all

been got supply with longer-term schedule a scenarios. have a MAX complicated and It's terms with Boeing is different XX,XXX We almost one. in we've are chain. production that we've parts example. system on working our planning of But There -- a XXX a for Fuselage,

quite complicated. So

to breaks well schedule have in we reason, plan advance. that for so these And

here been ironically that past. us cushion thing Wichita have buffer able move little the to that we have that a provides is good would in we actually Now, to than the bit this allows schedule more a one in production

faster rate we that. So, little before be bit of we have some up than go able because to in will a flexibility and

Mark Suchinski

you're Yeah. about you're on Rob thinking things. as spot math-wise, how

Robert Spingarn

on right. or thing the year. MAX, words, do means move into other year think for Okay. this after can which they with to plan on is others In that what assume problem but one And can get just position Boeing All this it I through in or this. without Well, you Are that? that's is they with your other what said, we China helpful. about sensitive happens recertification

year's protected so relatively And this regardless is plan of China.

Tom Gentile

we and Yes, their earnings believe. that's we what heard the same from Boeing call on thing

Robert Spingarn

you Okay. Thank both.

Tom Gentile

Rob. Thanks

Mark Suchinski

Thank you.

Operator

your question. go next with Please from Our from comes ahead question Ken Canaccord. Herbert

Ken Herbert

Hi, good morning.

Tom Gentile

Good morning Ken.

Ken Herbert

on follow up Tom, I on just wanted defense. some comments your to of

established that is risk be in you repurpose relative incremental capacity you could your upside programs production as any a on be your the there generating quickly back much some as down defense as be looking of as First, programs how defense wide-body get road trying at of to comes record? how that part win issues? you work you've to And the can those? there growth, revenue I'm eventually from sense what some of capacity, could just

Tom Gentile

of their Right. and the they're stages terms Well, initial in of early development still winning, in program the then the we're production. classified programs go that into is low rate they'll

replacement It probably like kinds it's but nondestructive that a large the able of equipment when available inspection of some rule about capital. have be these machines, within And automated is win of they'll good It's we're this is good thumb. of the years fiber that's it fastening, revenue-generating. of one now. to that's news pieces So varies autoclaves, we reasons two automated

in terms to how and will years. the of say that's using next two generating work defense it So the in we're revenue be it win

recover. before recovery recover, levels as may the we've for it's so of But if we're not wide-body make to of you We'll committed do to the are for have in to taking international international that terms traffic we expand going that. therefore, the it know any same get to a business that some can and In the account. we lead adjustments any that to time protecting plenty or that sure the make to to traffic with OEMs And that down, facilities we future, in into production do was rates the up and pandemic. up still at traffic take to and it down, while cases, need

with will capacity for we protected that levels, could that commercial does regardless, to we return available. the But if it the sure so that OEMs. same And make are be permanently

Ken Herbert

Great. Thank you.

Tom Gentile

Thank you.

Operator

comes question from go with Harned from Please question. your ahead Doug Bernstein. next Our

Doug Harned

morning. Thank you. Good

Tom Gentile

morning. Good

Doug Harned

pre-grounding, XX we the if at think XXX, we wanted of a AXXX. back looking the a I on on production month XX go MAX, a were rates month on XX month to to back pre-pandemic,

getting longer going when these is about predicated of margins, to on you for programs? and what XX.X% that kind back talk term a type rate So

Tom Gentile

Doug. a of Yeah. And That's very things MAX biggest good see, the program. that question one we our is

said, terms XX.X% And the ends so holds driver. a that. what But biggest in in how that's who breakeven of is terms bit as point to knows production high little MAX future in the be. would getting lower margin up of of what with terms Mark And the going the Boeing

were to we rate position XX, could it high in some get we think us a XXXX, back put enough we achieve to would And stability. which back would would where up be that that margins so get if that is XX.X% those to be that we That and in overall. a

there's like on fact takes the headwinds that into account XXX. the Now things that

XXX XXXX, X.X was XX you and per per rate nine recall might AXXX and back month month. XXX in aircraft per back was rate So as then was month

wide-body mentioned you that programs, at at right. and that's was XX the XX, on AXXX XXX was Now

is at XXX today schedule some at less five effectively five a of So little AXXX about changes. bit or is and with the

the to up the back that for costs get don't using that rates, one those of offset if things doing are same capacity fixed the so work of is we some And absorption. to defense

back up to levels, a still margin XX.X% we'll those the as even narrow-body they the previous So, range. that to deliver position don't again, with being the at we get if on MAX in be think XX an rates example

Doug Harned

-- I can go If ahead yes.

Mark Suchinski

Yes, real Doug just quick.

couple of XXXX, substantially bit going are in our I more -- think back be next XXXX a a to and aftermarket get was time by the other of to the of difference really the is significant although, years, size the defense business that's than over we it challenge the wide-bodies XXXX.

so in margins as of help normal the the going target accretive above than very defense will and will And margins Significantly well. be to be to XX.X%. higher it was solid. definitely is XXXX revenues Defense aftermarket the back

and as and along defense bodies aftermarket wide in a hit not gives diversification those be continue XXX us XX.X% good the XXXX, to shot XXX a the although, to go will bit in margins. back and really of growth rates the did production headwind AXXX So, with it up the I contribute as stronger a and much think,

interrupting. for Sorry

Doug Harned

And down. in the customer. so with obviously a then if okay. it different probably just can I gotten would of rates are because rates And back times you Back when you thing. -- on helpful, have times pricing very both came very one in normal -- would we're way that's no leverage, I So share benefit clarify those It's would sides would if down. Spirit now benefit operating

you words, for Now the you? for different as MAX have when In before? be being you you go might at forward, these at look do can lower benefits for other rates see these there you lower rates as wide-bodies than pricing the

Tom Gentile

the the programs of into did. Boeing some on for or less future based pricing the out Well, set Right. that is and we Airbus negotiations on all more the

things with pricing but one it rate. MAX, on So XXXX, indexed is we did that of to to -- the goes but the Boeing out is

the would price the MAX. That's But lower Boeing. is get lower rates, lower a is rates the the way when rates rates, then at tiered the benefit. pricing at So obviously, higher pricing just Spirit. for be the XXX on And up there the go for then

And… less programs on other example, out XXXX. for pricing or the out it's goes set -- the program On it's to fixed XXX on the more and

Mark Suchinski

But we at do get a step-up XX.

Tom Gentile

a goes We unit the on XXXX, at pricing out get line correct. XXXX. AXXX, to step-up And

into very So out it's the pricing those MAX but And far goes rate. the to XXXX, future. to up are all programs indexed well

Doug Harned

Okay. very Thank you much.

Tom Gentile

You’re welcome.

Operator

Keay ahead go Our your from comes next Wolfe from Research. question Hunter with Please question.

Hunter Keay

thanks. Hey,

part you Is broader question. contracts Have that in Tom has opened past? something negotiation, on that follow-up contracts ever up a work might you a on renegotiated of it the expect or as forward? Just future if happen existing negotiating again when

Tom Gentile

programs or is Yes. period I specific very going the long-term dynamic MAX. XXXX a discussions the and like time all into kind in our the always Boeing continuous, we of units and negotiations as big say, our Airbus said, would this mean, a to all XXXX and them. XXXX I to on for on on either with and so are there's I accomplishment line was of negotiated far future and programs But in contracts industry out

chain, about lower improvements things optimize supply competitiveness I've the all past So that those productivity of our are world-class costs. about and talked factories, driving in our now our to in and are overhead continue our fixed our locked digitizing driving we in

on things into place in we're Boeing all those future. our on with working Airbus all that the now to programs locked are we far and the have things that and So, improve productivity pricing our

Hunter Keay

Thank you.

Operator

Our with Shapiro ahead your question. Research. next Shapiro Please from go George question from comes

George Shapiro

payment quarters, million like to first in $XXX breakeven you minus several know the next I still flow here? $XXX to have in quarter cash Bombardier. wanted to And I you think when Yes. the pension how million close do you got get effectively

actually Boeing of kind I walk if just that. a to think you through the of deferred could XXXX. But little advances bit

Mark Suchinski

Sure George.

cash somewhere said we as to between year that to we're benefit. of think forecasting million flow usage I $XXX we're includes and going in $XXX million the -- the tax cash

flow So benefit million. the between cash if $XXX cash tax year that million suggest would $XXX exclude would be somewhere the usage from and you our

lower tough off fourth deliveries It the first us. for quarter in a quarter came The quarter. of was

in of quarter projecting receipts tad rest back well some bit we're half us destocking months the here the rates the into seeing narrow-body the course were and will So, We're our a as or nine over start some year. of than our increase lower for here. second the recover that next managing year. of the of next provide kind of lift inventory as to And and the over receipts the

our it we So going quarter the think relates is first that to usage. flow cash toughest to be quarter as

trends. seeing some Second this at stage -- quarter good the we're game, we're of

a on to shipsets of we the three months. cash move choppiness on do then the by how month see are as per you There's to continue month OEMs getting specifically commitments still going improvements about is lot Airbus per per get incremental flow And in into XX cash and next the some to over XX -- there. that that should in the pandemic targets talk quarter. ships year fourth But shipsets our flow course and next going out quarter. to month of of We usage expect we see the per positive, to meeting be XX improvement aircraft dependent the highly the we as third with fourth their XXX

into move believe to cash positive. so provides path we the And flow us XXXX the narrow-body recovery as we

Tom Gentile

add other many which is more capital I production rate And year George were lot so specifically changes ended and thing there suddenly, would a Last happened working accumulating we they on so inventory. inventory. one up

Now flowing supply last is had starting. it the positive cash destocking chain. that, year. to that seen them some They this But year the helped we've course of into

able So down burn placing we're orders rapidly to year not because inventory. that as we're this

efforts flow And so achieve our help us are over rigorous significant year this year. the cash capital also next very course improvements working and of will that very into

Mark Suchinski

helps that I George? hope

George Shapiro

thought units capital Is I yet? quarter I or of Mark that would that a had somewhere thought correct working Tom on Yes. $XXX capital number, expect million the $XXX on said you liquidation. million working number fourth

Mark Suchinski

we were specific. sure not I'm that quite

consume of cash We're just Tom to destocking some we're We're we I very standpoint And have from to Min/Maxs not as that think inventory. capital XXXX working XXXX. benefits We're we get that restock. consumed the capital from in what said in managing expect working tightly. million the $XXX our to inventory. to going about going a indicated going

our focused really Our to the all very half And last that year. placement days is year. the on turns suppliers provided back of in support -- alignment. happen benefit we're lot inventory will deterministic in of PO get lot this We our of and hand a going a to year on

the Obviously first As the units -- production help that the saw delivered destocking. quarter. the MAX on will increase accelerate single-aisle in XX the rates you we that

that some extra that consume us in help fourth which third some deliver the up We second as cash through than the and inventory will move we as will we forward to free higher year. that the expect of and quarter balance of

George Shapiro

a lot. Okay. Thanks

Mark Suchinski

Okay. George. Sure,

Operator

next question. from from Kristine your Stanley. Please Our question Liwag comes go Morgan ahead with

Kristine Liwag

Hey morning guys. good

Mark Suchinski

Kristine. Hi,

Kristine Liwag

you priorities the this through provide on venture how down we either aftermarket M&A? earnings Evergreen? usage can potential more through regarding Tom partnerships size joint or of also pursuing to agreement debt with for more like about details cash your think should pay And upside versus

Tom Gentile

Right.

issue M&A capital to EGAT the Let for over the talk allocation and JV I'll Sam turn to then it and on debt. about me address

Sam Marnick

Right.

EGAT regions. our that's It's across of JV expectations region it's about about and regarding JV revenue. in about disclosed at scope stages initial primarily taking what the across our our and JV Really this talked the haven't repair and bandwidth what In Kristine well. about we this or portfolio terms building is is Asia as we're the forming to of now right point

Tom Gentile

have we as Aerodynamics, have But stool repairs Airbus we said is radome it us have third is to Applied now now with cargo in EGAT Yes. surfaces. have flight the gives now Boeing we the we repairs, the with US those what Sam door repairs them Europe as in them we and have And repairs as Asia. control we well leg have and in JV

a balanced gives very overall program. us it And nice so

regard discussed on debt we primary focus Now cash cash and about. schedule the to that as capital flow inorganic have growth use our couple Mark over to to terms the talked on delever hand debt our of pay to is with years of allocation down and in the versus next

That arise of we we'll we in couple decisions that next have a capital. Applied with So allocate another would said, couple be of in see those But primary what looking we'll years. the But basis. opportunistic we'll next And have to and did those goal we that an do take opportunistically opportunities interesting. over defense for be the or Aerodynamics of and be if aftermarket could obviously million we're return But advantage the at like on $XXX look that good continue opportunities delevering to make the will it to and fit strategically priority with over years. debt profile. the

Kristine Liwag

a out want on target you size be percent then of do portfolio? years And also it few to aftermarket you that overall your Great. you a a look have as when

Tom Gentile

future said and to an for we've in in commercial, ideal our it be balanced would That the as XX% diversifying XX% defense defense be we into aftermarket. $XXX the be world the think nice we'd XX% Spirit Well and XXXX. about But if we future. vision million by want aftermarket we portfolio about think a for

Kristine Liwag

Thanks.

Operator

Stallard And with Robert our next Partners. comes Please from ahead question Vertical go Research your from question.

Robert Stallard

Good morning. much. so Thanks

Tom Gentile

Good morning.

Mark Suchinski

morning, Good Robert.

Robert Stallard

is the prepared Airbus and on was steep their potentially wondering year a that. week about just in the plans for was talking And after next narrow-body year well year. some how Tom could steep morning. be your I last Good Spirit your your ramp-up of if production the it CEO chain ramp this for a you're in supply switch about a This destocking trajectory for chain. talking suppliers does sort when radical and especially pretty supply of such call occur

Tom Gentile

we and well-understand lined feel very rate beyond and with and well-prepared. closely been for that. increases up are We've working this what plans very year we We next are Airbus. their Well, year with

is very course, are partners. of cost means XX% with closely. to absolutely critical have we chain that work of our chain have supply with they to the our Now, work and base supply and

a It's detailed dashboards. with for suppliers. There gated. methodology very rate have are we that are working our We readiness

regular it. have operating like mechanisms material We But it at things to orders. monitor looks

part infrastructure most in that's the all For capital, place.

have those also pandemic We raw rehiring they anything that's keys make in during material period, but most to this are of things then the for are to The that mothball didn't place. the and make place. sure orders sure the that part in labor some

a rigorous place And pretty the mechanism so have we in with suppliers.

to assistance. inventory and The We've financing a to of in other includes programs, support to almost ways is with suppliers variety of different support out helped purchases, billion provide thing closely mechanisms contract support a working we've that reached the them. vendor provide and been with XXX variety extensions, doing to of suppliers close $X.X

believe So are on our and prepared Airbus readiness based our rate as are suppliers we efforts. well, we for prepared rate the increases

Robert Stallard

great. very Thank That’s you much.

Operator

comes your Noah from next Please Sachs. from Goldman go question with Our question. Poponak head

Noah Poponak

everyone. morning, Good Hi.

Tom Gentile

Noah. morning, Good

Mark Suchinski

Good morning.

Noah Poponak

shipsets current in have MAX XXXX? How your many does you to delivered plan Boeing

Tom Gentile

like environment. a wait XXXX uncertainty in we'll lead still lot We'll Boeing's market. what that. There's point, dynamic a Well, what But through to see It's and next long at of after is. project this the it's this to a out. year follow early really too determine we year get way happens. very seems

Noah Poponak

asking here, the does that FAA that? latest of And to does or change on pace needing the affirmation you of schedule that is MAX shipset is electrical near to issues, Boeing do your analysis in with Boeing's the knowledge for to term Okay. the of more documentation news

Tom Gentile

course, point a impact it have would, situation. this Boeing no expecting MAX any reason But change indication could of It the not change, will. dynamic FAA it's it it Well, anything that to the we're made But believe hasn't could that the we it. current does outlook. situation. to but at

Noah Poponak

Okay. Thank you.

Tom Gentile

you. Thank

Operator

question. SunTrust. comes Please Ciarmoli from Michael question your next with Our go ahead from

Michael Ciarmoli

guys. Good Thanks for taking question. Hey. morning, the

Tom Gentile

morning. Good

Mark Suchinski

morning, Good Mike.

Michael Ciarmoli

million you costs, looked fourth a those that sequential I mean, there? the and from Just capacity What fewer of step-up to are AXXXs are last it to takes imagining been But I on XX% year. from topic guys about we level capacity that. guys? excess get costs? quarter. How reasonable think targeting I'm puts down the $XXX contributed you And excess like think these the should was there have how

Mark Suchinski

me that. you let through Michael, Yes, walk

You're exactly right.

addition quarter, the excess excess of had in a of bit the a drove excess the couple Belfast break contributed here And excess went fourth costs that, AXXX and quarter. resources higher Our bring a is, higher delivery the acquisition items bit I the have on bit and the capacity costs tad of through first and of program costs will the little additional to recent of pressure break specific that to we program profile XXX. the in capacity things ahead the rate compared first to say, costs first rate we site, to quarter, the higher with were the a to in some would the AXXX unload here on XXX one to that in a caused here quarter. of

the to We that. a committed sight year-over-year. got to XX% of are still We've line reduction

up quarter. here. to and step costs XXX to first we Excess to in rate our significant third was costs will lower right in as the nine for fourth expect improvement what the or over the quarter We second the on expect excess -- next in of third the quarter, trend really we on to the months and see came course projection continue

Michael Ciarmoli

I’ll Perfect. it guys. to Got it. one. Thanks keep

Mark Suchinski

Sure. Thank you.

Operator

from go Our question. Please next your Peter Arment from with ahead comes question Baird.

Peter Arment

a and one Tom just Mark. first. quick Mark, morning Good

the first If are do of you Any the the levels you have acquisition, think it, this you're have to you Thanks. seeing outside to And quarter? kind be what Bombardier levels, -- and you'll there? year? on revenues for acquired color how us adding employment mean do that give Tom, of related you what you just then back I could

Mark Suchinski

that's basis, I jet the half to would of we side business on the think, probably, $XXX say the acquired. wing revenues the see the just specifically disclose we programs, the the acquired out much pretty run slightly assets, -- hold I at higher revenues going jump I'll AXXX Okay. revenue about a year. on we slightly But of back that, -- for But million. aftermarket acquisition Peter, let and to how in as things. me the rate revenue. think that roughly not the the year continue We're

Tom Gentile

Right. having Yes, a then was I'll take the ended of for dual Spirit crises Last by MAX commercial reduce year the grounding the up to with our employment and year world. workers We pandemic. difficult across difficult. Very the headcount question. the X,XXX

XXX about of the offset. engineers, of Now, to a including program little as people started defense, we grow. to bit On a an defense lot shifted defense,

As X,XXX ventilators may we lost ventilators kept the year. over X,XXX people the that you But last year. built course of overall, XX,XXX built last programs We and commercial about people. recall, during employed,

that as quarter from went and wide-body first Now, you the well. this that year, XXX to went numbers down as MAX the But offset got the by on saw into programs year, increasing. in we the AXXX actually down the was XXX programs narrow-body

to we the increase So, production. started

So XX, were were we're last at continuing we we this and XX, year increase. year, to at

back So, in we've call to workers started Wichita. actually

rates and that required at XX, and for ironically the XXX reduce salaried employees, time. because, So went we course that the we'll this far and on year. we've XXX were Last But the place down. And in at employees the real is year five. production and work some expect on XXX We that Wichita the thing keep for that workforce. year, some place workforce, were have probably to we in to we between date initially us to other were back in good recalled to the to hourly of double about recall keep over has expecting workforce

news in in MAX the particularly Wichita recall terms rates, good start some So, of of the workers, the as to production area recover.

Peter Arment

Tom. hear. to Thanks, Good

Tom Gentile

Thank you.

Operator

we're to and question-and-answer And presentation. attending call. do you ladies today's and thank conclude going that, conference We session gentlemen, for with today's

may You now lines. your disconnect

Spirit AeroSystems (SPR) 5 May 212021 Q1 Earnings call transcript