SPR - Earnings call transcript Q2 2022 | Spirit AeroSystems Holdings, Inc.

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Operator

Good morning, ladies and gentlemen. And welcome to Spirit AeroSystems Holdings Incorporated Second Quarter 2022 Earnings Conference Call. My name is Matt, and I will be your coordinator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to turn the presentation over to Aaron Hunt, Director of Investor Relations. proceed. Please

Aaron Hunt

are and I to of Spirit’s am take and and me Matt, Officer, Mark XXXX outlook, second Investor opening Senior everyone. Chief with call. and results Aaron After comments today and Vice hello, President Tom and Mark you, Tom questions. Spirit’s Welcome quarter Relations Executive Thank Officer, President Gentile; Spirit’s Chief and Vice President, Spirit’s your Marnick. Hunt, Chief Officer Division, and will Sam our Financial regarding we performance Operating President Suchinski; Executive of Commercial by Director

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

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

Tom Gentile

you, Thank quarter Aaron, earnings Spirit’s Welcome to morning, everyone. call. and second good

future environment long-term Only global XX% the even and Xth We XXXX gathering we be welcomed entire The to industry and July, narrowbody of near-term has At pressures, Spirit’s the in operations aircraft. other with industry, major levels. reconnect continue disrupt traffic backlogs exceeded since Boeing’s Those for early Delta of the demand rest outlook holiday Farnborough improvement, and is July, Airshow, was rescheduling remain large the inflation. with of saw XXX levels. first XXX as air Despite air show for the Along weekend, Domestic for supply the suppliers the outlook increases. orders, In to continued securing the order orders recovered strong. which the traffic billion, MAX remains schedule close $XX these Airshow. that on happy to need multiple this we secured also for industry to customers, backlog improved narrowbody traffic the of Aircraft in and also MAX-XXs rate were Prior navigate is reinforced long-term including healthy. us the at many the global support XXXX XXX a Airbus air staffing to changes production dynamic July over dynamic with narrowbody event narrowbody AXXXs. respond Paris back environment our efforts. XXX nearly in Airshow driven to by the and stakeholders. Airlines. from the return of a which chain, challenges aircraft re-planning for they was XXXX drive to aviation

long-term quarter the favorable, the the like did pressures economic experience While industry. remains of we outlook rest this

These May, month production challenges saw our our shortages in challenges at additional As in XXX to chain. XX ramped suppliers MAX part surface in supply per we in some resulted airplanes we factories.

the the reduced we by and in we XX sits result, XXX MAX opportunity shipsets at have rate quarter the now MAX shipsets. taken XXXX. a month per have now As deliver on burn XXX to in taking which was stabilize XX Overall, Wichita, and longer to units to aircraft are down the buffer expect at XX about fuselage during we

some this analysis resume efforts program past on schedule changes of additional contributed number to also Boeing’s XXX quarter. the to the to engineering and a changes AXXX, this saw required also quarter, These programs. XXX loss deliveries. XXX We particularly schedule forward support The

work on with the to all continue to complete Boeing’s questions their the respond so FAA. can of We XXX, they

saw we supplier this bankruptcies several created that addition, In quarter. challenges

On loss been inflation are and we Through to that efforts our customers. of logistics of forward experiencing Also, schedule drove supply ensure the on million our challenges work. created we related some program, able the and to have to a recovery team, bankruptcy supply purchase transportation results. transfer have chain $XX continuity AXXX efforts to supplier once services, of headwinds our with

$XX Finally, we Russian customer to of aircraft adjustments parts million Due liabilities of certain assets have Ukraine, charge uncertainty program, and in taken the associated shipping light with of that a our of Russia. sanctions an program. invasion stops the to net for of U.S. on related

three wins show growth. we solid Defense. Our Recently, big Defense to in continues had segment

to program. re-engine cells Spirit in provide selected was pylons the B-XX the First, for the

Second, also Dream the Spirit program. shooting awarded Sierra cargo their star Chaser for Space module

joined we to business U.K.’s in as its support wins mid-July, core produced the HXXXM the Helicopter partner Defense requirement. strategic momentum British Helicopters Airbus These the in Third, Medium New a of demonstrate for our markets.

relationship Our year Space and with the programs, quarter would revenue very had Defense related OEMs and delivering have XX% second our second strategy also into and business Aftermarket primes. XX% moving good Without margins quarter, & growing markets Russia last growth about of on The by expanding margins. XX%. been a the new is over us losses

recently our in business announced expect to Boeing the also with second key at Tulsa power our and China. and Services We MAX July. toward Aftermarket our both released on transitioning progress partnership XXX% I Annual targets, of like GAMECO Sustainability want also accomplishments we We shared see benefit wind facilities. to from deal Report Wichita sustainability new in our to the the in opportunities, Global that the including highlight

the panel install facility. to completed In a addition, Malaysia solar we on an our large roof of array agreement

the technology quarter few of to through leverage efficient over the to I development Mark? and more fuel to aircraft. of call in the to will financials now our research take turn on our assist more you second newer results. Mark details investments continue We a

Mark Suchinski

narrowbody customers experienced quarter. pressures production received Tom, of rates see I our we in near-term chain, and to from costs. We time. the increase. a to feel optimistic ability post-pandemic the challenges That constrained we Thank morning, through supply everyone. as to and rising manage We our These over said, recovery confident this scheduled Spirit about and are continue you, aerospace am good shortages faced strength the some unique uncertainties not labor changes and

Now, take let results. me financial our quarter second through you

by Revenue and due revenue the start for quarter $X.X was year. slide production on with This XXX revenue, the on XX% XXX higher increased quarter program. Let’s partially last three. the of primarily production on same billion, the improvement up was Aftermarket offset lower from to

XXX the quarter XXX last with the compared deliveries. in and programs XXX the each the year. in Turning to to XXXX, had second higher second deliveries, in AXXX compared same quarter The XXXX deliveries of narrowbody XXXX, to XX% programs were of increased quarter

quarter were quarter of to MAX of deliveries XX were down the XX of XXX program. second XX The deliveries second quarter XXX XX last XXX units, year, delivered compared XXXX, last in year. increased units, we while in the the Wide-body to the deliveries compared second compared Overall, in driven AXXXs, to to prior the program XX same to units, by XX% compared XXX period in mainly to year. XXX

per let’s share slide to four. on Now turn earnings

EPS the gain share Russian quarter period same negative standpoint of negative the negative EPS that on Adjusted got asset last compared was losses sanctions. and on adjusted deferred in negative valuation investment to related the the to $X.XX XXXX. excludes to XXXX settlement $X.XX, repayable related year. of tax lot allowance, have you walking per per of agreement to key going the share impacted I $X.XX, reported so drivers earnings plan We from the this an compared the EPS quarter, second $X.XX We through earnings. a in

While and XXXX excludes allowance. the costs valuation adjusted EPS tax asset restructuring deferred

challenges chain turn, from experienced this rates. supply disruptions experiencing less and have our shortages has many a labor see pressures, staffing with increased to during new suppliers our led market to In continue quarter. factories in We they of the as tight and production employees part resulting

consumables increased negative significant production by margin We losses the in higher events, and quarter second rate pressures X%, XX% offset estimates to also quarter increased The compared further to were Operating reflects sanctions. XXXX. energy, bankruptcies, changes. by supplier experienced other including margins margin changes and in related areas. and in production increase Operating sanctions losses unfavorable the negatively the related Russian rates, inflationary was partially in indirect impacted to Russian of logistics,

and Russian recorded charges impairments losses These part The a by business well were inventory primarily adjustments. by production loss relocate result costs, forward $XX changes, resulted estimates and million to of and $XX sanction of of reversal forward In we charges the were cumulative $X losses and of cumulative catch-up with the favorable were on of and the and of relation supplier booked $XX the driven This mainly engineering in chain million million net million associated reserve unfavorable quarter had XXXX. costs quarter increased as $XX quarter for AXXX $XX The AXXX work catch-up and other supply a of and of cost previously XXX to This adjustments compared cumulative quarter’s adjustments activities, were and were bankruptcy programs. second increased and adjustments that shortages of forward result charges AXXX work. $XX catch-up million. million. XXX the losses costs, supply we the forward programs. million for net -- losses the as a unfavorable decreases increased charge current capital, on while rate the from driven The during increased the to chain, freight schedule of and XXX

and/or year XXXX quarter of the XXXX. any Other expenses the million did the foreign in taxes these restructuring same investment gains, of to included earnings pension for losses offsetting Second of forward decrease lower $X costs, on also not period income currency excise $XX of related a $X quarter agreement $XX million and of over income, second quarter The XXXX. second several foreign excess higher period million of costs, quarter million the currency a of capacity partially the compared settlement offset gain of million include and and COVID-XX abnormal higher $XX combined during same $X was by million, to last XXXX reflects items, the contracts. including higher repayable

five, of Cash the the due quarterly period the the driven flow agreement. usage was settlement higher was cash usage the higher cash million for working Now production of to quarter flow received associated XXX on compared related with $XX turning repayable to same advance million. increased to to Boeing by activities, this and slide free XXXX, cash investment $XX repayment the quarter free the in XXXX interest capital of

this AMJP was tax. second of cash net the Additionally, of benefits year, quarter and XXXX remaining of excise Spirit million $XX the which million during received program $XX pension-related award, in grant of the awarded

estimated million $XXX than XXXX year to free capital the achieving now free full advanced ahead, reflects continued cash to pressures, to inflationary million, chain management targeting inclusive cash $XXX usage This million important of flow $XXX improvement Looking year’s expected, the are $XXX XXX in and working disruptions million. deliveries, XXX and supply back flow down of Higher lower effective inventory burn Boeing our of $XXX to million expenditures ongoing due previously of deliveries between year. the capital repayment. of we half are this

which of further debt. debt $XXX $XXX through balances time. of We XXXX. on agreement, inflation, $X.X generation as part improved and we The have In that, Industrial to settle million remain cash to now could the U.K.’s addition, rates balance flow quarter the with on the over during Business, and balance Energy repayable full supplier quarter our Department impact let’s an debt reflects slide acquisition payment acquired adverse expectations. six. in With We cash of the schedule and turn committed year to production as levels healthy reducing Bombardier the of ended the cash of Strategy to changes billion a million investment cash narrowbody flow and disruptions cash made

in and due XXXX. The restructuring, margin XX% Now beginning increased Operating to performance, on Commercial negative programs. XXX, to higher for losses business in In and Russian of the capacity lower excess XXX XXXX. losses second forward of losses same of In well as to quarter and improvement production X% compared unfavorable was same the last million. related due $XX $XX million the quarter volumes let’s year. were to partially relation lower the capacity restructuring forward estimates million and Commercial the segment production $XX discuss AXXX were to recorded as $XX XXX up to Russian of a to costs during on seven. XXXX, XXXX, $XX to cumulative with the slight and of costs the In sanctions. million cumulative XXX The during catch-up compared XXX improved $XX by segment comparison, and segment activities, offset period the combined higher the primarily million and of of the catch forward of quarter second compared XXXX, losses $X $XX higher had million, million changes of segment programs, volumes same on partially on adjustments by booked the period million, the recorded the favorable loss adjustments. excess to of X%, previously our first slide reserve negative related quarter revenue sanction in reversal offset Net and

well pressure to let’s programs. as revenue the recorded the million for of XXXX, $X Operating and quarter of of XXXX. development excess PA quarter classified quarter the second capacity the turn Space some margin improved losses & compared to Defense in second in changes to same million The costs to capacity from program Defense the on quarter production the eight. and activity. losses excess $X costs & of $X of Next, quarter due million, Defense of on million Space compared in slide flat of development XXXX. $X between X%, was and revenues to Space production compared forward segment as see shift increased & did timing, and forward

XXXX, well results, segment Operating to spare slide For XX% million as quarter compared $X of pressures supply to period a in impacts to associated our closing, and overall XXXX, labor activities. repair of compared same for nine. our sanction are Aftermarket market revenues chain, production primarily increased of In to customer losses higher Aftermarket up part costs, turn impacts decreased Russian activity. of the to to margin let’s -- feeling to business now related as Russian the XX%, sales, higher to the due the maintenance, XX% these rates. and and we due to the strain tight were

customers. on control, our commitments on depends factors remain to beyond some recovery our focused on our our While delivering and we execution

to let Now, comments. me back closing turn over for some Tom it

Tom Gentile

supports rates, long-term The rates. backlog narrowbody Mark. of continues is since increased positioned narrowbody narrowbody Thanks, to outlook traffic to increasing the industry the from production and domestic the strong our benefit XX% and is aerospace recovery global air for production believe Spirit aircraft. remain well We of

other Our in global managing current in chain pressures challenges the inflation focus events. is on near-term supply by caused and

year. over see production we remainder rates the expect we our see MAX As XXX stabilize, to steady improvements this of

securing Our diversification the additional statement well, & efforts with Defense this are work quarter. Space in team progressing

The of pursue also have that, as We that utilization a With opportunities be provide healthy pipeline your could and future revenue diligently that a to emerging take the to revenue. segment’s team to the happy recovers. expect build aircraft worked questions. growth team foundation we will has continue additional Aftermarket we to continues strong

Operator

line The first Bernstein. Instructions] is of from [Operator with Doug the Certainly. question Harned

Your line open. is now

Doug Harned

Yeah. Thanks. Good morning.

Tom Gentile

Doug. morning, Good

Doug Harned

to you in one that the comment terms what work stands getting am getting XXX what needs the where on be done, I both thinking on XX. now. that related Section talked hand understanding and the in there much you of resolution issue and would was that, FAA, work that with about because the Tom, work, restart, was backdrop? Yeah. pretty about the delivery my understanding timing was Can new the that be to was in of F of outstanding my XXX also -- But but this impact production that

Tom Gentile

a things. couple Well, of Right.

they to to analysis We the statement have all and engineering submitted Boeing have on on the of related the of with we work all have worked we responding have closely their requested. XXX that questions

the forward they Mark requested of have was resume some is any we was that which submitted analysis and are have can outstanding with our working that and so that closely, mentioned, all and it that work this with But complete them deliveries. loss. engineering complete, we of part additional Now, there quarter, they so FAA items

support XXX. will Now, see from engineering signs last Boeing. no we aware, continue packages for so is that press outstanding that work week need far were encouraging our there that the analysis we on did there as reports we and as But some to are they us on

Doug Harned

this us can with there you respect two in if understand We to should for other any are takes quarters just negative? And the more know U.K. one payment. we that. be I we the and if about puts or surprised were then, didn’t Can cash thing, one-offs help quarter by cash, other looking positive next just either

Tom Gentile

Right. last Well, event. subsequent something is the a as U.K. item mentioned we actually quarter

and up clean future everybody was reduce to it described try liabilities give it we it, coming sheet just and up we that was off expense. to the So to did heads really interest pay balance as some a

couple next of we items XXXX. repayment still we Boeing the that we it’s in of million, paying have million quarters, a was that It there are the the from that are quarter is and $XX -- advance standpoint, out before off. Over the that got $XXX cash really so mentioned that about a

So next to in two of $XX million pay. about we the left that have quarters,

terms outlook go So cash per are the and XXX, ask of rates at is that’s production to because is which And about one-offs. two about the just month. did kind what’s in at, want of rate we same for I aircraft you Boeing back

year. deliver to units expect We XX roughly this

delivered have seven. We

we got or more the XX go for about So year. have to XX

Doug Harned

you. Thank Great. Okay.

Tom Gentile

Thanks.

Operator

for of Thank from question The Seth Seifman next is the your question. with you line JPMorgan.

open. now is line Your

Seth Seifman

much I very wondering… good and Thanks Hi. morning. was

Tom Gentile

Good morning.

Seth Seifman

cash. million use with, -- say, think balance what first end And a flow to given the point we year half possibility and new … sheet $XXX is cash the generate and guess, How to Mark, I if let’s building in on if has the often then, of the the of big company we in blocks the cash should are? starting XXXX. for about XXXX cash

of end do of we by all coming approach your due debt the to of XXXX. that? half think the first think How I about million of is there $XXX

Mark Suchinski

Well, the with back is going answer are our flow to let deliver some capital question the half cash units supply on this Tom that me really about think adjustment the chime first in We part. of and just right? less of to timing, the chain of you When some could year, working the challenges.

We have standpoint. from buffer some to are inventory strategic build to up an more going

going loss up made of over isn’t to it’s time. So some cash, it be

cash roughly you to and understood standpoint it is, So your I to quarter you quarter a toughest always next standpoint. year. the end are just million secondly, the $XXX flow sure of first relates as cash of that requirements free the having And make right, that. comment our from about wanted debt But is from year at a seasonality

expect this forward that to At We sheet us that -- there don’t down will pay cash we point off we to any use balance it in need time, to debt debt. that pay for production books our as we and refinance believe and into cash move is we our come the that should via with XXXX. cash on down flow, higher expected expect that rates

Tom Gentile

the the Seth, next Right. for Since important we least particularly MAX. be And aircraft on for whole we the are XX blocks would XXX that are the XX production expect we now, building year, rates, at at month XXXX. most for obviously, of per

to building that in said, of we ‘XXs key in is high block. and breakeven going a be so MAX Spirit low production ‘XXs, is rates, at the obviously As terms

very be and WIP. that management. those we thing I’d recover say expenditure our working help of of our focus is, we up, go terms prudent capital on other and in some which would of deliveries burn The building And working as then production block capital some continued down working then, more, rates course, capital XXX expect inventory streamlining to have will

we do be we building outlook would XXXX. flow those would in given positive expect, next year major the current for next be cash So blocks year that and the

Seth Seifman

much. Thanks. Great. Thanks Okay. very

Tom Gentile

Seth. Thanks,

Operator

from question. Thank you next the Rob line is Melius. for with of Spingarn your question The

Your line is open. now

Rob Spingarn

Hi. Tom… Good morning.

Tom Gentile

Good morning.

Rob Spingarn

would mentioned … have that labor from exhausted come at a need hires. recent have recall your conference, you you and list external to incremental

your up and that is how how relationship then think and And see that earlier, suppliers the rate to to getting curve and I I on learning that? the XX.X% how on to trouble ask affect because to XX the having with doing that’s gone, process, about newer labor, it one speed does you you wanted I So but MAX margin? a with between of people the you mentioned are want talk a

Tom Gentile

Right.

more you month. market into less are job a new we the or our We we But for did and have almost have so extended have So last list X,XXX people. there employees. exhausted offers. started tap recall We we had right, over XXX to

seeing so areas, in Morocco, slightly in now, very example, are in good In and solid and Saint-Nazaire number we same Wichita Prestwick, our actually France terms the And of their over So area. staffing there. basically we for Malaysia, Tulsa, overseas all right Belfast, up are take in Kinston staffing our at numbers. employment are

is staffing our say, hire people is resources more have a one the But current solid. to of from would We around I other thing, in Wichita. do able programs. to few shift been So, have do we some

are example, we staff have XXX rates lot a for shifted of down, XXX to the So, production XXX program.

XX the fact training we at XX rest say, do are fairly get remain job gives for get them stable time to that them and training we training. I’d need. that to generally basic training, hired, at, then us on the the the get month the that days employees, of per we and rates to and The learning them are the staff absorb we through year, new on going their to need specific curve production look So, about get through

on basically to brought have they expect. example, back, and we our days the leave helping center, we got we and and track so, that phases to floor are that. that it’s training normally would being try with we say, on a for kinds -- lot retirees three So do training, it’s And of those I in to what just XX of have yesterday it’s

Rob Spingarn

target same the are you So at margin XX? rate still

Tom Gentile

there, absolutely. and around plans bit is XX to XX.X% all right. of obviously, once our but we built get to -- be stabilize and target are challenges, there will rate that’s that, we pushed obviously It’s the a Yes. But our Yes. little once been

Rob Spingarn

Thanks. Great.

Operator

of your you Cai is from the next von Thank line question. The Cowen. for with Rumohr question

Your line is open. now

Cai von Rumohr

I so you nowhere end that’s XX had close month near units Tom, of which the surprised was stored that XX Yes. quarter. per have said, to assume XX about quarter, said you during the were why? talk when of per avoid then forward, of are month, to month, you going us the XX a traveled run they XX I rate, to Boeing And maybe have they explain talks work. I mean, terms you there, of down in at but not because the pause would rate to per

is in this the for produced your effective and what for deliveries what -- So actually rest scheduled number XXX? Boeing that the the is XX of the year for total

Tom Gentile

Right.

Okay.

in plan be past, units where a site. permanent Wichita the started long up to And are production it, at maintain So, we units, To of said Seattle reposition so XX buffer. buffer Wichita, some these lagging have we closer That’s want result about will as already we that, to a term. to XX. for of from let a the buffer clear, rent to Boeing, Boeing-owned at now I which so have us in in will at me a last they be some that fuselages. that were explain are of the all I it’s reduction the are call, on area, And units also are that they those buffer XX%, so are I to as stored to system. believe have we stored these buffer of clear cushion not mentioned fact, is that’s we the the XX%, of be the

and as So lagging that already why as it quarter. a result that’s process the has of as Boeing. number It did much dropped begun wasn’t this just

year, -- did We supply drop June catch XX for the effective production we of allow are at the In chain to but little XX%. producing -- that are back May the terms the up June, we and year and a bit is rate rate to are of XX. for the remainder we in to

produce the is units. expect number will that this year of that’s our we we line. off coming will MAX What about XXX that, So be

So last quarter, XXX. said we

recover supply We out taken to buffer have the chain some the schedule and this down some of to year that of burn inventory. allow

for to now the units So or already so we XXX, total believe we the units go. I year, XXX expecting XXX have have And we for are delivered so year. got about

Cai von Rumohr

you has of that basically if per them are your but so hitting more their XX not have been they to month because been Boeing excess rate. have on shipped fuselages, have But premises, some Boeing. right,

So buffer destocking you bigger. to think that bit the right the it? is go way the really terms of to the in have little Is through a of

Tom Gentile

as goal production about position it is No. it we where area the XX Seattle It’s to Wichita. in say, then up same though Boeing. at And or not the the than say, cushion to system in the and permanently to units would burn buffer, down was, been rest what’s of in QX. But basically to I rate the have flat bigger because I’d more was less the

just you transparency So I some to give trying am of…

Cai von Rumohr

Okay.

Tom Gentile

what’s about in in here left Wichita XX what’s is … units. Wichita and

Cai von Rumohr

you. it. Got Thank

Tom Gentile

Okay.

You are welcome.

Operator

next Thank the you Jefferies. Kahyaoglu is for your question with line question. from of The Sheila

now is open. line Your

Sheila Kahyaoglu

first the the more flow you then I about a million think cash second a in $XXX which half. and and into is free and wanted first we and in if the guys. of $XX in first how items understand half, morning, one-time get million Good to take outflow flow Thank of time. Hi. you $XXX bit half XXXX.When happens for little translates cash half what in that million the walk the cash still quarter, eventually in through working going that’s free away $XXX we million anyway, I had capital, outflow top guys about the think we away neutralize that

the and and mention efficiencies better gets what but MAX and changes rate, there didn’t up as I So XXX guess maybe in you increases. what the

guys you mind that? if through wouldn’t walking So, me

Tom Gentile

half levers that year, will a say will then But the you of I give help Mark overview there the for details. I five the into Sheila, will second level are jump cash. high and Right. would

half. the is going per will so the driver to is months XXX six a back cash rates, first second be XX So, entire big and the of of be half that the at month for in

what XX The We we in XXX second is half, for only I is to delivered the the planning but year. the first deliveries. seven are mentioned deliver earlier,

XX half. have next lot doubles the it the as will still We we off. have of production give and capital down. the much back in The to deliveries opportunity So of production do burn XXX inventory driver to so us burn that the pretty main go, go a inventory driver up, or rates the is working --

continue can we these prudently losses will on and expenditures and and created in manage some that we be target do of will have bankruptcies to half. also us We second the capital that have for we recoveries very supplier working supplier

So building what drive those add the Mark, additional the blocks in for second are to some can that. will performance half. you maybe cash five

Mark Suchinski

Yeah.

program But, cash going to you is, back the XXX the half captured think Tom helps most that profitable Tom. Sheila, multiple we indicated, deliver year one I of and our in flow XXX a it’s it from and well, ways, as are in of we going to help lot half in improve we first But of so we a the up the were a in month, XX cash year, inventory. the profit bottomline. and that rate brought will as also at stabilize on

half it’s at the of the look you year. flat inventory, first pretty our in much If

predict that be of some to the inventory production have system. up buffer as So to able stabilize and we will production created we rate built that XXX burn protect

up get to are higher be in the we cash delivery So we and blip higher the building see won’t rates year. XX half of back the will ready be for cash of to going half back -- the year, line flow production stocking deliveries inventory, the in be generation the we the stable in won’t flow

by improvements said, doubling our from Tom see capital a we As modest will some deliveries. XXX working

there out. got fact expect I a hasn’t help the built WIP in We up year. the of much the to us do in half any more a than a that year, And been will to that then of down due better deliveries back have of job inventory lot burning

$XXX half in expect If XXXX, over from of inventory and with to you inventories improvement look pace we -- getting what an close our the rates we at production were million standpoint the our to pick of line did in in the an back of we up year. so

stability some think half based the production is where big a the in expect hard lot year, now first in see marketplace, going the and and driving are are those buffers on work. we year. go we going of to end it. ourselves to drivers get which add big, we challenges of those needing not some think We it’s So and a in to supplier a lot take strategic of I challenges the between position, factors but really the of to but of because there, There

Sheila Kahyaoglu

per guys, the the advances given second -- I does was so in cash is hit thought are cash and a I the How a up follow half? you hit because just -- accretive And XXX ship million XXX, the margin you maybe losing for unit, a loser $X on per that that that thought there, XX% how

Tom Gentile

Yeah. Yeah.

yeah. So really --

coming that right, Sheila, the to you the work rate XX went So, number way that started a process we XX down from off are comments production that were XX is, right, But a of we exactly those year units, to to works are five. of right. significant from in of

year production in of so number are number that the of this system compared that’s built, much lot because at a be units will be of the production system, the to end beginning rates in the of them the completely production will so of the lower. units dramatically end lower the the XXXX, And almost of year at

year had lose year this So than units the capital we on creates system at we will money although less in last basis, an be some carrying at benefit. and the of WIP working we that that, production absolute end

Sheila Kahyaoglu

you so Thank much. Okay.

Tom Gentile

Sheila. Thanks,

Operator

your with line of Morgan for Stanley. The Kristine from next the Liwag question Thank you is question.

Your now line open. is

Kristine Liwag

Good morning, guys. Hey.

Tom Gentile

morning. Good

Mark Suchinski

Hey, Kristine. How you? are

Kristine Liwag

look your billion last cash, the could and year gets cash cash that balance, terms? your ticked you breaching I are this net monitoring to of $X.X you In under debt, debt to end for Can from up at the discuss you mean, billion quarter $X free of at you the outlook cash quarter it flow with covenants terms full take and lower XXXX, pressure. potentially still avoid actions

Mark Suchinski

Yeah.

relationships, So, capital not today, have traditional at Kristine, banking structure when any look a revolver. we you our don’t

in So well Loan which books at we B, market a bonds, debt on debt that right, as debt of public is today, you as the our with -- look Term combination debt holders, the holders. when holders, it’s capital have our

a, debt those structure no standpoint. of leverage a there it, what covenant say, cash from the or balance based quantitative call So arrangements, requirements -- no on are would from standpoint I a

type real challenges on So issues no to agreements. potential as any covenant relates of it those debt

that balance to we maintaining not near-term level debt, and also -- appropriate down an we flow of very am focused cash that on want anything So to on paying positive. is We I as perspective. and cash have cash very about to worry focused a return from obviously

relates due how to challenges will So are bit kind near-term. no think talked on of we our here in come with plans We covenants. but middle the a in the about I the as little of okay near-term XXXX, that deal bonds it we

Kristine Liwag

helpful the quarter. program, And quarter, last Defense, Are to forward if the related million forward forward? color. do and losses if million follow-on a provide $X really and so, could context some of these size going the contract That’s took I same a $X this you potential you risks loss around can

Mark Suchinski

Sure. Yeah. V-XXX awarded. $X of straightforward, program was the customer have contract pretty cautioning until kind arrangement supporting million we that our a it’s and there with gets are with associated about so we that Kristine,

little loss So of small in that of for bit a was the a due that a to awarding modest delay government contract. kind just

program, with no that see do in production million time. the there’s systemic being we on the program our And of of and lot at Defense got with allocated going structure and -- loss on some the on But a we to and Defense. have cost same that a had We to the shares resulted the Commercial line along our programs this our on system point production in around tanker XXX crossed the pauses team. XXX so in dollar forward to Commercial on be fingers a had are that Defense couple tanker of then that charge that side, share our winning that challenges we that

Tom Gentile

transition growth that, we you have a development would to Defense overall, annual of we programs. look I at And if some past the are Right. lot did a get these we of X%. issues the say from look business. a as expecting But this modest XX% at increase year the on moving confidence about in in bigger of the But, couple production terms of Defense revenues,

track forward systematic. issues We these for wins. the of on have in very but solid had a highlighted It’s loss were not year. they small that are And the just relatively Mark some impacting

Kristine Liwag

color. Great. the for Thank you

Operator

with question David line Barclays. you the next from is your question. of Thank for Strauss The

open. Your now is line

David Strauss

how you. think we said going clarify Tom, think, maybe year, could on to we does weren’t XX. you at -- MAX to going down to Thank down all progress? really then XXX, originally, I we I does down the we had today? from how XX get you XX to are just that and that buffer, this were now at were mean, I get come we do How XX

Tom Gentile

it Well, is the rates said have burn to of in terms really point. down order always what is, Right. we production at lag to we in Boeing buffer have some

this we to to we they rate are But we going XX them. originally was go at so XX XXX same course of we now expect to in going over reason Boeing to lag didn’t be So, out. would it up it and rate year go and said, from rate in the the basically up the we of again, expected then as and level

we so are what production to to XX we Now I Cai, Northwest, system. saying permanent to that units the down in they Wichita the are reposition buffer some for a is reason, the -- to is started was that the

we to the in used was to days. train there would in days six deliver take unit Wichita, out to a Seattle, XX Before, the point Renton and load of and eight days

disruption, or could if of little left that sort very there any time delay something production. of it impact So was any sort

keep XX units decided would we that’s Boeing and of buffer that plan. with that the So we

Right Boeing will have some we exact point when at has the to right burning their the buffer them future, down yet will in units overall, But started down in not and as go up we get are burn total, I will to units. down buffer don’t So Boeing. terms because that at to rate now, it as in and continue now same the rates we lag of reposition them. is time an the the lag this but increased we be when will XX they

David Strauss

it I Okay. got now.

you flow next You to think year. still positive guys for you free cash get can mentioned

realistic or flow is Just I year? ask wanted to positive million, year, you free flow. are thinking that next for slightly free cash think, breakeven to $XXX you next the cash consensus $XXX for closer million above Is

Tom Gentile

driver on XXX early will But call create bit better the at opportunities. particularly I’d cash XX% MAX. above the it program, this the for still it’s the for the us, go what production those the XXX big are Spirit, flow just for and on point, really up, if say, production program, too little what That’s a MAX rates and a then program that program. be obviously, the do us depends rates rates for to will XXX

but year, the for XXs the So XXs, for rate. want it’s cash I for comment in going dependent next high as I Spirit. low And MAX, don’t on outlook that’s flow said, specific on breakeven a to just be to

for are will rates year. drive that the if above next flow So that, us positive cash

David Strauss

Thanks Okay. very much.

Tom Gentile

welcome. are You

Operator

with from question Shapiro The for of is Research. you Shapiro your question. the Thank George next line

Your line is open. now

George Shapiro

back inventories the but have I I Mark, total, gone at flat want flow to payables had them because cash your if Yes. contract you and year-to-date, made, said, up assets, look by like that million. about comp $XX to actually go you in

have effectively capital benefit you So a working this got to year.

from QX? think have got saying in payables context where I they inventory So about were million that in you liquidation I down would happens as to they go $XXX were What to something of some thought.

Mark Suchinski

working at receivable, Yeah. accounts think, up payable we balance have you think $XXX balance go our capital. the you that’s seen million. are But I absolutely George, right, our is look on I over sheet, at benefit up, look if you a which if

So that’s an consumer cash. of offset

higher other. think each growth is payable So neutralizes than growth, that receivables really I

turn inventory it As going burn to and our you turns. an contract or hasn’t start said, down in, seen and are us our flat, we assets, when we in haven’t -- it’s the in we environment year-to-date so generated from that we the up improve rate, should are inventory hurt

a and of buffer chain strategic half year, where to we where So higher had we drive year the rates. as with is should and stability as inventory payable the going production extra the rates, sanctions. had but the the it slightly to up of result see we the first with challenges, bit, in higher higher of through in add titanium in progress inventory Russian dealt staying, we some should that tick we because with or We AR balances production supply bring

move assets, we the which contract the a back the into to should XX the we As month half XXX. WIP support the was building in year, line of --

able the in stabilizes that get we once drumbeat factory, the steady we of inventories we and we to get higher be a and liquidate will stable have. that All some of

better We the current our will rates. production with min/maxes align able be to

system. drive And AP the of the the managing AR, our of if themselves in think kind so in year, and think, of stability I a I can offset job we inventory, back we the half good production do

inventories the cash half the see inventories in help will the year. improve back will that the won’t We to come flow. and of We down have replenish

George Shapiro

costs somewhat this capacity quarter. if go higher then you through could were And just Okay. excess

been would that still XX% thinking to saying for or the XX%-plus? they have you year. think Is XX% more now be it’s the I down

Mark Suchinski

No.

I be think to it’s going XX% to XX%. down around

with suppliers of the -- Tom a our bit probably slightly catch bit about right hot A I think the of lot kept into bled It’s we that in a -- in give excess to at time quarter, kind said, of We to last from at some we little suppliers factory part bit quarter, we parts second down of and paused our a there. costs. on the we AXXX has July XX to shortages that stuff our That tick the that XX%. that of some slowed from We as to little saw at little month a on to I on bit. do moved with so, a slowdown told a program. impact had down sure make you as XXX time up.

to still we excess say, a material about be this what XX% We change $XXX in costs quarter. from in XXXX lower, So, so million, it talked somewhere I year. XX% first $XXX it’s expect million had I of probably the would -- we between and not or million still $XXX

George Shapiro

much does come that more down how year? And next

Mark Suchinski

. another I XX% at XX% to probably we looking year-over-year. say are reduction would that

Tom Gentile

And on but, George, is obviously, on of based a production MAX rates. it cost month. excess production rate XX depends The per aircraft

potentially, back into it incur it where when to much depends XXXX. of on we is year next disappear get So and we just XX. rate will But how in terms the

Mark Suchinski

And the XX inventory and a month helps happen. reduce that us or the we expect to excess costs excess

George Shapiro

lot. Okay. Thanks a

Mark Suchinski

Thanks. Sure.

Operator

for Michael next question. you is Thank your The question with Truist. Ciarmoli of line from the

now is line open. Your

Michael Ciarmoli

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

the capacity Just to burn there. stay I you XX% George’s Boeing increases, presumably at of even hold cost. that questioning buffer. on excess to down a mean, I to if if going line are XX the mean, guys month, you to going stay are

at mean, with I then to guess, So, you XX far lockstep move up see rate really so in buffer a and you you you staying do what into Boeing I have? go can XXXX envision how month that do long the need given how to or

Tom Gentile

year, again, for the the XX. next Well, change Boeing has not Right. committed to from in outlook really just of any terms

to before If to how they that you earnings including all out are their what listen to to be. production the call, system, their electronics, said will wait overall engines they and production see they how rate going systems plays and commit

based to right, per and their wait aircraft returning the are are we to month. on excess that. really aircraft will to you XX But on we at take are lead have per costs XX So month,

be as remain excess additional below costs will year XX%. next there we So

depending stick laid in Boeing, that the vary will to the terms to on go the seek and down that’s that’s will basically we that we until to that And per always have the lag the but them in we Now buffer. past equation will buffer. down what go again, they we we out burn how month, as up, about fast they of lag said have burn up five excess

Mark Suchinski

how year, next XX year we even for excess cost stay at have for will if at if a year. we it lower And full we this be just, Michael, clarity, month, XX will much and stay I than the know

Michael Ciarmoli

Okay.

you get reduction, to I capacity to there. XX% But I mean, XX, XX% a to still even mean, there’s go Okay. if XX% right,

always extent, an So be is I correct? this capacity to lingering to mean going

Mark Suchinski

will we the we a the month. lingering Really, impacts see of excess XX cost hit move… we until Yeah. as But

Michael Ciarmoli

Right.

Mark Suchinski

and fairly … becomes we to XX into and a small get that right? XXXX number, XX,

Michael Ciarmoli

Okay.

Mark Suchinski

than lot XXXX, zero, what manageable which we more in its million. to but say was Not saw $XXX it’s a

Michael Ciarmoli

Got it. Got it.

guys. Thanks Okay. Perfect.

Mark Suchinski

Sure. Thanks.

Operator

Bank question Thank the of is The with Ron Epstein line next you of America. from for your question.

now is line Your open.

Ron Epstein

morning, Yeah. guys. Hi. Good

to and between of forward AXXX? distributed the So I loss want run XXX was

Mark Suchinski

Yeah.

supplier was see of forward end work, and to $XX driving So SAIs, which so, into it’s once you cost to in to consumed we and have now but year million on with loss, was $XX to the it, bankruptcy us that first on and been AXXX the then and recover that $XX them [inaudible] we is a important AXXX, ours have that site, quarter and so filed million associated the we of of the year. be was a you XXX% on a sizable between so cash plan next unload XX and fairly unload will part working presence the around through impact go that and schedule, million have with and

year. had airplanes we year, the support getting we is -- saw the -- AXXX. schedule, some little deliveries and on about the scheduled then bit impact them customers this have then seeing XXX, a the help chain that the we engineering talked tied half trued pressure to to next delivered the schedule. got as on we then And lower about, supply So some are of Tom costs up official Once And to additional we to that’s XXX.

from through cause West going meantime, We on that challenges, gone to a work the we supplier in to big got Coast have to higher them. supplier, were the us we from some and financial that prices that incur are that and another components going on to supplier the that to have purchasing has move is

forward the about two loss. of million are So $XX those that -- combined

Ron Epstein

I you. loss. loss, I AXXX programs, can a forward go loss, through XXs forward in infer tankers loss and of in a a a the is if think, Got kind it’s forward isn’t AXXX forward and then I And

changed And when was fade a supposed programs when Belfast some that these expect, positive that How kind we the XXXX do actually you I other positive to have or a and some has of for make of this now? can of example, return on in investment actually return? expect mean, to AXXX to timeframe.

Tom Gentile

the bankruptcy say would supplier. AXXX I continues this very original issue accounting program well from to on track to our purchase the absent one the

supposed are go a and program us. to to for So profitable loss it forward ends that’s in when XXXX becomes the and the rates XX

So up the that’s information have transitioned We technology. has well program. and we on gone the off track. agreement of service right with on ended The integration closing Bombardier pension

agreement. union the renegotiated have We

off loan paid addition, incentive In we that U.K. Government. the refundable to

be on are of proceeding absent this we are reaches track So loss that very plan, XX positive profitable program bankruptcy this a and in to things forward lot on XXXX. and quarter, once track is on exactly rate the supplier

Mark Suchinski

have And line then -- get on as adjustment talked -- a historically, at lot we XXXX. there’s XXX, we price unit

so to XXXX, where cash continue break cash timeframe, breakeven XXX. flow unit I positive flow think the see getting that’s to about the line flow getting or focus positive at the XXXX-ish, on on same we cash and us positive that We

really to are are to we I plan programs plan lower -- of on about what market an execution kind our am has talked told But move bit And production standpoint. we think little put and from on that the on pause so I just a that The plans the the there Tom that have what right. delay the and big XXX. focused AXXX those two the are XX rates reiterating

Ron Epstein

Got you.

Okay. you. Thank

Tom Gentile

Thanks, Ron.

Operator

with question question. of from next The the Baird. you is line Thank for Peter Arment your

line now is Your open.

Peter Arment

an to bigger been advanced to or Yeah. of time, Good questions in lead to given just, like a lot Boeing morning, supply have rates Tom just more just but could they up. Maybe and picture, take what’s rates, you give for going production going on this the if have Mark. Tom, asked just of decide chain. on is

six it instead rate giving typical, months thinking be higher about say, the are on a of MAX. may four or to when they So whatever the months

term? to given are in are chain, earlier this going your Just chain the the of seeing supply have supply know to let Thanks. is obviously they longer and insight what you thinking

Tom Gentile

production we for roughly, production or normal any time lead six don’t normal normal. the rate Well, Obviously, now. changes that’s rate live right months, Right. in is increases times

and be and the flexible. and we ready talk have rate have that to they supply bit that use a and scenarios inform on we to regular So use that little adaptable basis with other a with us they does Boeing get about suppliers. to production chain

various we as scenarios different we So flexible is the to variety airlines of next extremely are have because six months their the production we with normal environment we a we and been XX contingencies. have so that time we lead been those. that out are trying with and much for accommodate rate in to do the but But Boeing, that But is months, so have for those scenarios very and we know go as have that we working dynamic prepare in prepared possible. working

Peter Arment

that. Appreciate Tom. Thanks,

Tom Gentile

Thanks.

Operator

waiting additional participation. time. There your this question. concludes you no Thank questions call. That for Thank at the for conference your are you

now You disconnect may lines. your

Spirit AeroSystems (SPR) 3 Aug 222022 Q2 Earnings call transcript