Earnings call transcript Q4 2022

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Operator

Good morning, ladies and gentlemen and welcome to Spirit AeroSystems Holdings Inc.'s Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is Glenn, and I will be your coordinator today. [Operator Instructions]

I would now like to turn the presentation over to Aaron Hunt, Director of Investor Relations. Please proceed.

Aaron Hunt

good and Glenn, you, morning, everyone. Thank Spirit’s call. to fourth quarter results XXXX year full and Welcome Sam Aaron of Director Executive Executive and am Officer, of are Operating Senior I Defense Hunt, Chief President Vice Mark Spirit’s Commercial me and Vice and Marnick. Division, President Officer President President today Suchinski; with & Executive and and and Chief Space Spirit's Chief and Officer, Division, Vice Gentile; of Tom President Financial Investor President Relations; Hawkins; Duane After comments and regarding opening Tom, by Mark will our Duane, we outlook, take performance and your questions.

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

earnings reconciliation our when presentation results. follow addition, spiritaero.com. to and reminder, you on and for we today’s use we at release measures can broadcast and our slide disclosures discussing as non-GAAP a presentation you refer website And In our of

that, With to call the to Chief like Executive Gentile. Tom turn our Officer, over I’d

Tom Gentile

good travel to to some X% was return level. the see China, lifted full Aaron continue XXX Last traffic are market, below morning to you, the quarter XXXX across best Welcome the and recover to encouraged and Thank air where performing And we saw fourth in was in US year Spirit’s service. call. results we travel XXXX everyone. year, domestic MAX globe. restrictions The the

further. logged year. provides Boeing's to orders XXX orders and the and additional MAX, rates increase aircraft and narrowbody favors several Domestic The air travel AXXX the Airbus to production during the both new which narrowbody significant plans backlog support of like

by backlog of continued narrowbody benefit are since tied expect We will is we demand, our Spirit which the to encouraged XX% aircraft.

XXXX. We we pandemic. challenges same reach workers significant a the had who remains number during level production a to employees number the to of the increased we proficiency rates experienced While time of to new hire prior of robust, as demand taking are had we as

We with the hired. attrition we levels also experienced new higher of employees

which throughout addition, year. levels similar higher challenges, suppliers the encountered part shortages in of resulted In our

inflation. also higher our major we these challenges, encountered We by levels production of to Despite XX% across increase managed overall. programs several rates

a managed program, increased the On through to from challenges XXXX we in production XXXX, XXX XXX XX% as the XXX units units increase. in

drove in recovery expected in of quarter, fourth support which ready and but in increases is for we an to investment the the level higher additional production additional hiring XXXX, production To XXXX. cost, headcount the began rate the get

higher supply XXX December see as While units produce In at plan we our XXX production XXXX. we to chain capability to rates. demonstrating to expect stabilize and behind produce was shipsets we schedule ongoing XXXX, we XX issues, delivered XXX units. about production, the XXX units, includes In XX January, challenges our which from

to we our XXX challenges XX delivered our programs, program through wide-body units navigated to and last Turning customer. the year,

to process address fit on applicable all partners production to the the with build program. resumed finish XXX new and Our a requirements the

the units a this needed forward completing is which than unit originally new units labor more additional process, one per is on future After we loss have with found few of expected, driving the quarter. reasons an

We what and we and incorporated the finish rework. we than to expected now XXX have is the XXX also process is It taking units. requirements new-build needed fit for the believe rework in stored us longer

continue we disruption, program, driving AXXX pressure. increased our to see cost On

schedule. put the program the of behind the ramp-up of we chain. During saw transfer year, disruptions continued The the and supply production from parts

our initiated plan. have We recovery

the forward walk included expedited shipping will his you additional customers' these details forward programs on production our support are However, resulting losses loss. in of two Mark of recovery costs section. to through in components the

We continue to support their programs. narrowbody on Airbus

produce continue was to line in demand we to and their in production Airbus, expect from with Our sync remain plans. with to production

and XXX XXXX, plan programs AXXX about XXXX, XX our In XXX units to production produce at rates recovery. our the we international wide-body as units. support AXXX increase we In looking to for between customers will and support their traffic they

On the XXX expect XX to and we XXX XX program, shipsets. between produce

per plan as -- Boeing sync the with they On to production increase AXXX. six to with plan AXXX we produce from on the to about Airbus excuse XX me, aircraft program, in month or and five units remain

Hawkins role our turn will let's retiring segment Space, Now, just our off current President, hand from few On Duane is & Miklos. Defense and the a to segment in Defense to his businesses. Mark and Aftermarket weeks

great in Duane? and the we job to segment, a Spirits' XXXX. team and the you opportunity have Space & through him Defense wanted an of building many from to done take give highlights some Duane

Duane Hawkins

and growth created XXXX, five our effects, Thanks current new In on UAS, we winning ones. new Tom. with programs team a Across some the really Space areas, and executing ones. Defense existing did good and next-generation customers next-generation aircraft, some job, relationships space, & expanded hypersonics,

little The to from million XXXX PX programs. KC-XX solid revenues approximately $XXX XX% Defense Space and & with segment XX.X% the margin. had contributions were over up a We from

developing for units. tooling we also while by production program, manufacturing began rate On plan, rate and the preparing our full build LRIP delivering CH-XXK production

had important to the B-XX of the the we celebrate B-XX partners seven the platform. December, is attend defense to in new the one program. unveiling to on And contributions Spirit team's opportunity this

result that of Spirit. for unclassified opportunities continue Defense could We classified have to we eventually pipeline strong pursue. that team revenue the & In significant XXXX, and a multiple in Space programs won

skies nacelles the racing here B-XX stabilizer extend We Spirit in approximately will engine the first the the the which often support an for build struts a aircraft win year was aircraft will in replacement for One that the and commercial program, life were of we to are KC-XXX XX selected program, in where horizontal Wichita. help also of the service. see

Space the the Another agreement module. Cargo year Shooting win was in the strategic Star Sierra for partnership

the will to a Space service of and Spirit to advance Stars, family Shooting modules. addition cargo together Sierra and modules work In

FLRAA the to this Bell to a new to monitoring Army proud And be Valor. and protest member finally, exciting on partner, we is forward award are them Team of program. look supporting Spirit closely of our the Helicopter

development, Defense National NDPC, to industrialization our Spirit continues Center, prototyping, capabilities Prototype The strategy. and support to support growth

capacity addition continued NDPC, our repurpose wide-body to In the we to excess defense have some applications. of to

This is feet provide our has So approximately which establishment X.X our significant design transitioned accuracy. on million team capability of can assembly been our to Wichita ability with be the to far, business. defense involved the how we &Space manufacturing customers critical programs. square we'll optimizing Defense of center, machining to production full-size to from future support determinate initial includes The classified in concept

the facility with XD product a XX Island some has [Indiscernible], as unique in weaving equipment We a acquisition closed enhance the The of that small XXX,XXX great set of opportunities. development square brings talented and out capabilities. Rhode individuals our year company complements development foot technologies and to as that the other hypersonic portfolio well composite our technology new support weapon that will

XXXX proud our on in at the & been revenue billion margins. with building that by to XX% of to target segment we've I'm Space business Defense XX% Defense $X track Spirit. Space It's of &

Mark Back to Defense new with working April he to Tom. our leader, forward look you, I Space & X. Spirit as Miklos takes And on over

Tom Gentile

Thanks Duane.

margins. aftermarket region. strategy with to year continued out build expand geographic also customers a business in revenue The strong regions. at had capabilities of support growth Aftermarket team XX% that our established to in to In ways Asia, Our MRO we key XX% our multiple

formed GAMECO repair a with Evergreen agreement China. an signed Spirit Taiwan nacelles repair flight Malaysia signed to surfaces. we Corporation an venture April, establish joint MOU with and authorized for with control in center In September, be to services in Technologies Berhad we in the Airlines and Then

MOU out range in services Joramco, with Mideast We We provide how a the region. the bring also control repair MAX an of customers metallic nacelles, thrust the Aerospace flight services partnership and the Boeing arm composite for Enterprise and surfaces, year aerostructure to with Dubai reversers. and signed on to repairs engineering explore to a to of with closed

revenue our business XX% of for excess margins in million $XXX Aftermarket target to with continue byXXXX. We of

turn results. on Mark now to details through our more you over I'll to it take Mark?

Mark Suchinski

XXXX experienced schedule high supply levels and our of in new of morning volatility constrained shortages, including training We and attrition hires. Tom pressures, to Thank inflation, labor pressure everyone. and production you, good ongoing for chain, significant due increased

resulted have in factories. our costs higher challenges than and These disruptions in anticipated

on those factories execution new higher We and particularly to and expect focused our some into enter stabilize of these pressures related to support continue chain getting to supply in strongly rates. XXXX and production employees. place people and We XXXX, the training

financial Now, take details results. you our the of let XXXX through me

production higher production XX% programs, on XXX as lower up the Let's on was This and revenue and improvement Space AXXX, was slide Revenue XXX, partially Aftermarket billion, start revenue, due with as XXXprograms. for Defense primarily by to and offset year on from XXXX. & the well increased the AXXX two. $X

& strong $XX Defense XX% of had XX%, XXXX Space displayed by topline Aftermarket The growth segment about of revenue million. growth with revenue execution year strong over increasing with a also levels.

XXXX Alternatively, Overall, driven than more down by higher XXXX, units more XXXX delivered XX XX% deliveries compared to to wide-body compared AXXX X% deliveries. year-over-year. were XXXX. XXX increased in Turning in deliveries program narrowbody were Overall, XXX We XXXunits XXXX. XX% deliveries mainly XXX XXXX. units and less to

in share of on share compared negative to XXXX. earnings Now, negative slide let's $X.XX reported earnings to per $X.XX turn We per three.

items, EPS compared negative in $X.XX was to was adjusted the XX% negative prior margin negative in certain Excluding Operating X% negative to year. compared $X.XX XXXX.

factories, part partially challenges, instability. shortages XXXX rates, The to out-of-sequence offset program, production led the is XXX and higher to improvement our operational from and disruption work specifically resulting due labor by continued over which in on

million $XXX unfavorable $XX cumulative million compared million. Full catch-up were year losses adjustments of cumulative in This $X adjustments unfavorable forward totaled and XXXX. of to losses catch-up million $XXX forward and

factory The forward in forward to quarter and incurred XXX by primarily the were losses, driven related higher the we XXXX, of million $XX AXXX the recorded largely which fourth million by programs. of Specifically fourth loss XXX $XXX from related was each We cash driven quarter of impact the as forecast build this years. requirements estimates to next issues. restarting new the the and resulting fit occur loss on four the production in from ramping finish as over well cost to unit

support quarter our result of additional additional and freight costs The in million customer was deliveries. and fourth a XXXX issues, to quality to the related charge manufacturing shortages, part AXXX of $XX labor of

In we of in to facility. experienced an the Approximately initiated resulted factory have that fourth will a and quarter, production additional $XX cash costs. into our XXXX. impact will we parts disruption resulting transferring plan, loss in our disruptions from which forward supplier from now additional to of addition, result a million have during This Kinston the recovery in

recognized of we primarily the of the fourth unfavorable and quarter programs. catch-up XXXX, by in million, adjustments driven cumulative XXX Additionally, AXXX $XX

due disruptions part shortages, and schedule inefficiencies labor our experienced we hours to On and work. program, the the behind XXX out-of-sequence which exacerbated continued

To made and a efficiencies prepare catch aircraft the XX as up believe and we've training production for rate impact important a has employees the and future. on decision profitability support the well program's next of rates higher hiring break, of as rate near-term month. to investment This per accelerate the flow, the to production it in is but Spirit's for we improve cash prepare to

by included disruptions over adjustment to XXXX $XX $XXX and The driven decrease million costs also labor. million and earnings XXXX. of related a increased excess AXXX of freight, was unfavorable capacity material, costs, chain program's and supply operational

that each Other were other in due of $XXX This expense to primarily was variance million to activities was $XX years. in income XXXX. the plan pension undertaken of separately million termination compared

the gain the benefit frozen non-cash US acquired Bombardier XXXX in curtailment included the closure resulted as XXXX, And of million Pension charges which in of of resulting defined a Value $XX we from the $XXX part million. plans of A, terminated Plan acquisition.

in expect settlement we We taxes, than pretax charges for the to no quarter. excise of the the noncash well additional for quarter income as XXXX later conclude anticipate accounting as the charge second and first tax-related final which

by a for third we $XXX Now, call. to Belfast turning Boeing in in our million million as well flow quarter impacted a both received the one-time we to plan large Free $XXX of that in pension million the in range $XXX communicated XXXX, as advance free repayment were flow line payment was XXX four. the slide cash cash received years Free tax cash XXXX items, year XXXX. including in million, refund in the of XXXX, several on cash flow on with usage $XXX

from net the In million in XXXX Pension forward negatively not million B. was received items impacted forward, Ukraine, pension-related were of a and constraints; changes; the Value going of from $XX supply and grant by headwinds will inflationary including other Russian from schedule production addition, Plan benefits that AMJP pressures. termination also recur $XX program XXXX of free labor flow There several part shortages, conflict; cash the losses; cash chain the

to XXX largest XXX AXXXs cash XXX Looking we improvement. deliver year, will to which XXX be the XXXX, during plan units to approximately and of the flow driver

Additionally, Value been Plan by to million XXXX higher impacted appealed. be of A, Pension offset of positively surplus $XXX and the payment, by from interest reserved payments the a has $XXX previously cash will which million termination litigation partially

Incorporating items, cash, we $XXX pension are $XXX than XXXX estimated cash all capital to million range free including targeting expenditures in the the better surplus be to of breakeven, flow million. reflected

cash cash flow and due quarters be cash the year, throughout to We of of normal weakest anticipate the the partially flows. flow first last the quarter free seasonality to our improving three

the ended We $X.X cash reflect in of $XXX now refinancing existing that, the repayable debt $XXX items the I balances completed the activity extending to investment first million upsizing maturities addition cash in turn flow listed half during million balances and $XXX of XXXX settle as These the $XXX debt with payment and drivers on quarter and million cash to to and previously we year agreement five. slide let's XXXX, debt. to free our by billion the including With million. of and of refinancing fourth on of

In AXXX on starting slide $X.X AXXX, volumes Now lower and billion, XXXX, revenue production offset XXXX, compared production the let's by the of partially the segment was XXX six. an performance, with on to XXX segment due on higher XX% primarily discuss our and programs. Commercial XXX, programs, to increase Commercial

negative margin negative higher driven volumes to on compared XXXX, the by Operating was in X% XXX. X%

cumulative $XX mentioned, million. adjustments losses in the previously I unfavorable included catch-up changes of the year As estimates during million forward of $XXX and

excess XXXX, In XXXX. catch-ups. and compared in unfavorable million during had $XXX $XXX million of to cost million The $X the segment million of comparison, segment cumulative of recorded $XXX forward losses

impact charges recognized Additionally, related XXXX. during the segment $XXmillion an the sanctions, Russian to of which had

to Space & Now, P-X seven. to & higher turn due Defense or the million development activity let's program higher Space XX% to increased production. slide revenue grew Defense segment and XXXX on $XXX than

the was XX% into for to to profit the taken margin in Operating The increased non-recurring XXXX. and absence classified to program XXXX. X% due higher compared year of improvement charges

capacity of of segment losses million million In of XXXX, million and $XX excess $X and million XXXX. $X forward $XX capacity the recorded forward cost of to excess losses compared cost in

slide to segment repair, well XXXX, revenues eight. Aftermarket our For and overall to higher were due results, $XXX let's spare XX%compared million, turn sales up primarily to Aftermarket part as maintenance, as activity. higher

increased in inventory to $X.X Operating as well of losses year for due the related one-time Russian XX% margin XX% to compared to as XXXX million sanction. charges the to adjustment

loss in supply than instability disrupted XXXX forward more a ongoing production volatility, our year increased costs, chain, expected, challenging constraints, labor a we was inflation resulted schedule charges, and factories. and in

and right. over two Many expect years, I the during continued challenges going last that many financial reflected recovery went to have continue metrics forward. things improvement the were Despite of year, the there several our the

We our has repayable refinancing & segments, maturities have investment and and executing on extended debt, settled activity, aftermarket including wins and have restructured which we in our a Space Defense our agreement. announced

and XXXX, enter cash improve well with our we stabilize we teams are enable our suppliers As production we The costs to and execution position focus rates. profitability operational ourselves optimizing as throughoutXXXX. working us internal for as on our should higher move as and production to flow

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

Tom Gentile

remains the aerospace Thanks global strong Mark. Demand in industry.

will strong challenging close stabilize worked and make provide rates, results, with the faced. navigate positive supply and XXXX. we for higher year We at were to pleased challenges hard to chain a was foundation some which to progress it However, the to other year we production

free we to and as supply rates on narrowbody As productivity XXXX, we improving cash work we benefit enter to continue from flow increased positive be expect stabilizing production chain. and our labor our

After since We in the recovery the trends the will years some volatility positive but Spirit. have of benefit from we be the will challenging first crash some as depths XXXX, there seen some continues. market the still that MAX see improvements that in pandemic expect X

was of XX% narrowbody to XXXX backlog XX% it narrowbody production. Spirit's traffic which levels, will aircraft. compared is recovered benefit And Domestic to of aircraft what has

aircraft said continue the that for which programs new other Spirit develop to has a and our Boeing is for want MAX many they will until news all of not since do Boeing good years come. to XXXX,

started has upside brings offers that program China China to flights, and orders. have Southern very news MAX aircraft good China which as both then deliveries stored the fly MAX starts Both again. eventually is for and the taking of again Hainan places storage and new out made

XXX that progressing MAX rates profitable and commitment announced Everett, a the Spirit's line organic that And well. highlights Boeing & which they're is most on increasing fourth segments MAX Aftermarket Space biggest their our production and diversification Defense to just program. starting in in and

good including and We eVTOL Boeing some commercial and machining opportunities opportunities. freighters also have other growth opportunities in for Airbus

For three Rs. XXXX, primary calling we are what will our three the be objectives

our increases must all workplace improving First, programs, maintaining while production a and realize we rate of the across safe quality.

Second, flow to currently as profitable be costs positive if even and up do we to have position structural to Spirit fast production not projected. go cash as rates reduce

cost infrastructure, chain. team a and executive assigned in to of areas; operations, focused supply have We leaders our optimization and three project senior

through to infrastructure positions the is X,XXX our headcount from requisitions. attrition, of target open area, hiring In a reductions, reduce plan and indirect our combination XXXX closing

as our aviation rates the industry. the we we we face history Third, meet workforce so growing as of ahead are we to ready as fast to reenergize that want fastest challenges can the the in

be take happy questions. With will we your that, to

Operator

Instructions] you. Thank [Operator

first now from your Strauss Barclays. comes David from David, is question open. Our line

David Strauss

Good Thanks. Great. morning.

Tom Gentile

morning. Good

David Strauss

prior I looks guess kind Because of XXX month. seeing of would talking the which on to now your before, breakeven terms cash a it like better I gain, be I without forecast? what so but including than today, seeing pension in than guess you're changed breakeven, you were Free that, was you better than think better the cash XX now flow, MAX about what were

So, prior guidance? reconcile if your just you flow changed free can cash what help now versus Thanks. us

Tom Gentile

Yes.

of changed So of things really have forecasts. made -- thanks A David. lot we some since those

seen higher logistics, across like board have labor. in as utilities, as the freight, costs well things We and

we as are production, In addition, the -- at cost the those just for are going up. overall looking

rate in So, to on it's in was ourselves that now And example, program. That's future. hired we've, month did aircraft reason the to any prepare for that the XX higher now. we means MAX investment to mentioned we up for that of advance per level. That the increases a higher rates

so including And now, estimate of Mark, anything add? types the we'll pressures those are make conservatively $XXX the of to headwinds $XXX that and us pension benefit that else to breakeven million be million. to

Mark Suchinski

to David, I we it production, on We're that is bringing right, instability have much going continue our support summarized in to cash flow. think our a to and see Tom negative higher XXX in factories. headcount XXXX cost impact and

that And delivery the and so the to stability factory headwind need we our our first is commitments meet in make customer. and to to investment drive

indicated support incur additional that expedite our shipments, will overall people, which requirements discussion. be Secondly, facility, costs Kinston our is and in $XX more $XX last to additional cash we plus to had that our loss. and recovery mentioned in us going million, an incorporated took that I And impact some not some that had to require challenges mentioned hire I forward was million and customer

stability here, than that to I'll of probably provide as some on you, have think additional the so needing anticipated we think going capital. ahead here. pressure to about breaks, buffers working then bit supply We're we I of it's in little continues as our chain inventory, also bring And more the rate put the a tell we

We throughout we'll in to point early year. to we're progress just information the you this started. time, update year. providing we continue at So, and make it's you that sure can with some we that in want We've meet as the

David Strauss

you. Thank

Operator

David. Thank you,

line Rumohr is Our Cai from Cai, now next Cowen. open. question your from von

Cai von Rumohr

Yes. Thanks much. so

if the three you just all quarter Is black cash throughout breakeven? of ink then ink, it maybe color of flow some of and year, pattern red give the So, quarters us there. one

in January. sort Is is now just Or And then in bulge you they that because pretty sustainable inventory fourth a the that, out to XX done -- And that related they're the much delivered quarter? just were rate? door. getting and of -- XXXs the

planes to so tough huge quarter. So, we're that's kind you. from first get to the of in Thank that not going build benefit delivering a

Tom Gentile

little we because the and seasonality going That's cash several as is that Cai, in bit quarter should that our And one-time So, said flow positive. to QX, toughest the the of payments we be QX is quarter. earlier, cashflow Normally, QX first happen from standpoint. cash the anticipating. be in a are then QX, just pattern a our hardest in QX

January, run In XX% the level projection. for production terms rate of is a

to for As The about XXX XXXX. XXX. we for QX going said, plan units we're is produce about MAX

of on started breaks So, it's But XXX the some the do QX, and XXX XX the basically January. with right with units throughout just year. we expect in in We year. rate the is in half off schedule the back again, year total,

Cai von Rumohr

in one-timers give interest -- are Thank mentioned on the hit those second the you quarter. what first us gets some color quarter, fourth and the is you. in you because could basically If

Mark Suchinski

the production do cash at with the of from Yes. that first to has lot shutting the standpoint, Sure seasonality year. our mean I worst down end flow. quarter always A a is Cai. of typically

pay happens cash we what year, without we customers. go the or is, bills we our any from start the receipts so but first week two And off of all

negative would so as And say it first relates our the biggest that the is I in seasonality to quarter.

delivering the we therefore, deliveries. to any start XX weeks to to us days and starting seven couple for get it year, of Last paid. a takes And units of make don't

you still that's but therefore, quarter, cycles XX pressure always the so first in And have receipts cash and flow. cash puts what in lowest the our overall are first the payment quarter, on

out things correct. compensated type repeat. you're first But There's some that the quarter don't that related in paid get incentive-related

and interest to As in fourth it it relates to quarters. as to big the is occur relates second going the cash headwinds on

Cai von Rumohr

much. Thank you so

Operator

Cai. you, Thank

line from Kahyaoglu your from now open. Sheila Jefferies. comes Our Sheila, is question next

Sheila Kahyaoglu

you. thank Hi,

cash ask the to the -- the XX on and us is I contribution thinking me? How you target losses the XXX between are wanted thanks you to the about what given Can guys. XXXX, So, deliver and burn shipsets. forward just XX just given hear in

Tom Gentile

Yes.

burn of to cash right it several still related So, XXX advance as that shipset. continues XXX said unit with cash burn. a now Boeing is on we've -- per years from Part yes, we basis. send each to ago

And requirements So, $XXX,XXX is program. unit. on finish, further mentioned, terms new of as in fit of with overall build of hours, some XXX the process, about more it's in that, top drag the set which per then and I this is resulting some in the creating

have We've a price forward reflected quarter. that continue XXX at XXXX, in the But challenging the Boeing. to be program to the loss go in work do to announced then, to higher be to line our unit with until that negative going as step-up where up we a we reduction price continue programs. is continue program. We we this cost does But a

Mark Suchinski

you're I would here. Sheila, just think I add, going

a about you If in forward said, loss. think -- Tom we're as

everybody So, are XXX costs cash. our consumes that understands and the price higher than

when stopped. you year, portion for the of XXXX, about big of year, the So, most a for production think was

And place, you so some still shut the to of day, employees. and down costs the couldn't pay end completely were of you incurring we had bills the the at

significantly production at higher. XXXX So, our per was lower unit the in cost

cost our going As into we standpoint help double help production, reduce which per cost are from will unit. a XXXX, move to and fixed we

more flow, your that versus build we pressure XXXX cash as would units, in when year-over-year. you about we XXXX, so typically, had the on that think flow put consumption cash And more

at a consumption would say XXXX, we're little unit starts consumed I production, with XX on bit units of But to in We're how doubling we down. Production consume the think XXXX going much at going it. of bring delivering about pressure versus how cash XXXX cash how still We're money compared the losing to XXX, up. when per units, we on the cash back flow things cash to XX cost much in there's up. on that's but shape

we helps lost less bit little what that If in little more than a Just a XXXX. clarity. provide

Sheila Kahyaoglu

Thank you. Yes.

Operator

Thank you, Sheila.

RBC. is Our now next line Ken Ken, from question from comes Herbert open. your

Ken Herbert

about It Tom, that the is see month, you the looks a just XXX, or you if of up around unit today staffing just us in on you Can Mark number expect on think sort we wanted the talked that breakeven like where a at year? be for basis where set sounds the the creeping to chain supply I could about the and XXX, end to cost incremental like past it we XX maybe are on and disruptions. of with clarify. level obviously per now how should you at

Tom Gentile

labor utilities we And it supply costs think get some Great. we've the -- because I higher for as even breaks. is like as and particular, cost now, seeing can of Well, that higher and right overstaffed chain. to rate well true are in we've program also logistics levels ready some on in things XXX it seen increases cost in

past at started we're to that once to to we that So, basically, per breakeven. continue. off be month, XX%, and the in XX This going said got -- we year, we're aircraft would going we that the year

year, we're be rate breakeven. saying to and have later the in We going we're that breaks couple a of

units better year, do out how flows see in some we this everything additional we So, of in have we'll how terms but can much do.

But XX month to and consistently breakeven. be breakeven. get say at -- at we aircraft I XX the will that of back would that we be to month, aircraft per going year, some we're said plus year, the This end we back per

more we naturally cost, no is higher there as doubt absorb help, to of up it improve I we're the rate margin the in as system, costs, will the will about we putting What we'll pressure continue said, and are that some All go which goes as rate, up. working in and is said, though, to the those. fixed offset

Mark Suchinski

between but would drive XX%, instability factory factory. we're built breakeven within right previous difference be in say to we Yes, in now single schedule get behind time down in being and a breakeven I the and limits. the we're is just the the this get get in out-of-sequence driver will the the within making instability back that in investment our control stable, work the at factory control situation there's Ken, the to cost the that we expectations biggest at an down limits Once back the being lot its point of of to to

we're first year, now so breaks we're the sure and get half to going here next well-prepared quarter forward in in than that And cash that's position that why flow of the down the a that back positive for investment right? the we're good cost to the generate in making make more that to happened

Tom Gentile

So, year. in is to to of right the capable headcount expect we're and make now we that's where investing the end us XX

by those training, place individuals the they've So, as they got for their get in they be job, experience we'll happen. those on having ready breaks and now,

Ken Herbert

you. Thank Great.

Just training still surge the ramp-up sounds predominantly one to it's the do and the disruption with rate factory? down issues the just like just associated It are it delays? labor the to support seeing that? quick and to instability rate related you're in predominantly in follow-up. supplier is Or Is you road. But hiring having and with

Tom Gentile

takes we of and the some No, it's people there. we a factor, of to time. and higher getting get XXXX to and back levels labor bringing seen time levels both, just all that is new getting on it It's at up And just They're Ken. -- attrition. it productivity Certainly, them the taking have in XXXX. for were trained

probably disruption. supply have also when there's is you than two exacerbates all doubt three it or factory traveled state. the And the it But seeing supply when other in work, in steady those chain shortages times still creates that of there's We're the chain creates shortages, it issues. kind factory, higher disruption no

also labor, So, both it's the supply but things. chain the is It's shortages. really it

would under are There control year. improving. chain supply say we better on it. got challenges, than that stay just it's see last We though were definitely situation can the but I is to still we but laser-focused that,

Ken Herbert

Thanks Great. thanks Tom, Mark.

Tom Gentile

Thanks Ken.

Operator

Ken. you, Thank

Seth Our line question Seifman Seth, JPMorgan. open. your is now from next comes from

Seth Seifman

everyone. very thanks much. Hey, morning Good

Tom Gentile

Good morning Seth.

Seth Seifman

told that's been left that you a the of you of have a in in could wondering investor really for what the talk the tougher guys in and guidance this for materialized, later if I was there year, past, the terms deliveries year community. haven't bit kind XXX you've plans the rate in breaks position about little

can So, the later little breaks rate the of level confidence in talk versus past? bit you year your about for a this in

Tom Gentile

of from what that Well, will couple the they've but very our the are we've closely customer been they this worked And and been volatile very firm Boeing more you're in to case, that's rates establish to what right, be saying to forXXXX. over committed past schedules us. with going production take have years, the

achieve will rates but the we make units And deliver we're fairly we involve it those. that is so later to two But can And the own by it. XXX going in staffing point that at well this to vary, and breaks that's committed in now, it. may year that Boeing their now production know rate to take for

we that have there So, I in the projections expect, would the we XXX is a has say And that now year. deliver process fairly degree what do at but been we're post-pandemic. with along certainty this units right point, volatility, we'll further of this high for more and the

Seth Seifman

Great. Thanks much. very

Operator

you, Thank Seth.

your is comes Shapiro next George line George, open. from Research. now Shapiro Our question from

George Shapiro

morning. Yes, good

Tom Gentile

Morning.

George Shapiro

missed? $XX was that all Inventory we due that XXX third. the the XX million the fourth up from in deliveries to quarter pretty much Is

Tom Gentile

well road the out end some just push and -- of XXX. just George, the in as shortages, them well. those and We numbers, door. to would the part, disruption know make intuitive most shipsets very expected relates the we inventory on deliveries had the to the you're parts lot our down always, we for numbers it the support to you're that brought but the as XXX you down. A I pretty those couldn't by year, very burn we of -- the say, are with

driver and growth end biggest deliveries third between that quarter in to of we those make by didn't due XX year. the to the fact inventory So, fourth the the additional was that the

George Shapiro

past the much in what that margins negative Okay. you does be in the to XX rate, the on back impact follow-up, And made how that start a to you'd XX% the catches XXX Mark, able to XXXX? and the at get you've -- given XXX, said that

Mark Suchinski

inflationary this, good couple I to. XX.X% some talked gone a proxy George, conferences about calls of in was The or the you XXXX, standpoint, some think at a that when I when overall would environment, of we're that in and today, earnings the say from have of this going the about tell macroeconomic time. cost in you pressures think But about the we've we've would to back the it to in XXXX. and last you evaluate point

backing ability the back I off We're and XX.X% saw achieve are margins I the that of XXXX. to our you improve goals our going on in talked and to to think cashflow segment margin. get about things types those that that not put XXXX of all our to just pressure

outside is this But there lot our on pressure that margins. of that fixed are that our things are putting pricing customer. overall point are We with control our a in of time know at

And tackle way we'll year, rates. is in so production us. to we to these and of our higher continue of throughout move front take to we costs the those -- the margins But the as drive manage production advantage we rates have higher

get to stable, here to cash we're first, that things we've XXXX then move on And on factories focused got First and got XXXX. really what as we've into we in that's our improving flow ourselves to get positive.

overall investors. sure in dialogue at we'll to conversations we progress this are time, that you improve those to every guys with providing now. plans. But had we're when between our those our make to there's on and taken value has lot call ourselves stretch that our to But point profitability goals a great continuing our place And

George Shapiro

Okay. Thanks much for it very Mark.

Operator

Thank you, George.

Liwag Kristine from line Morgan open. comes is Stanley. question from Kristine, next Our your now

Kristine Liwag

Hey guys, good morning.

see how we assembly already can factored inventory true XXX guys the year that that you XXX production Boeing and higher the final burndown the production in? think than about had? the you talk MAX about XXX rate year, So, for Is On be that have? could this you

Tom Gentile

Well, account Great. taken what for. will the paid deliver produce buffers. and inventory get XXX The we and Boeing to is we have into the and

in in rates over But as down roughly system useful honestly, to time. continue Now, place. get in have up. buffer burned the XX go cushion have in provide Those a buffer we will Wichita. quite units or that so to thing it's still a the And to meantime, production also they

production will serving as Spirit's. Over years, two is But Boeing's smaller buffer a very buffer place rate to it's that purpose that exceeds cushion get for right times system. the different at and production the useful now, next in

Kristine Liwag

Thank Great. you.

Mark Suchinski

just would add. I Kristine, And

what For carry focused clarity didn't we in units about we'll deliver that and over. we're on is it's the XXX, XXXX XX

expect And be so and place new we put planning units. what for. in and to XXX paid of that's we're And on ship to production

to internally to have we is the trying and you to Boeing for. on produce schedules purview, just get we no their the delivers Boeing we expect contract What what and have ship to customers that's to to communicate Boeing and We're side. what we paid expect what

to what so our you are-- And we a production delivers what we on they have know from have think rates to customers. our Boeing deliver have because I that's to stored And production units. what can't deliver customer, to really again, our do to going they commitments is have production we separate the contractual Boeing opine What is line, and

Tom Gentile

carried XXX for last production clarify, XX And going to which year just from the units, includes over that year. the be to is

Boeing deliveries So, total XXX. year is units to and this production

Kristine Liwag

follow-up could question And if a I guys. margins. on Thanks do

the guide breakeven. breakeven, how that, year, should think XX mean XXX for mean that's three for So, I per to your it's with per month, XX, we we we margin average before per was out when I it month just now about progression? if get

the XX.X% you the And sounded guys mean margin. walking like get it are also for segment I back to mid-XXs, when you

of So, can get where of there? that margins an magnitude and mid-XXs idea stable the change you could rate and to us give be you when

Tom Gentile

production inflation would lot things and seen freight in utilities margins logistics improve. Yes, and supply the other chain. terms headwinds terms I improve. say of And We've in costs, will of will what the margins in rates rates as increase, well, production increase, certainly is and a as of labor

this projections at improve will change been rates terms the point, be making but at certainly in is Now volatility production in much times, there's not so of specific they we'll we're increase. where as

Kristine Liwag

Great. Thank you guys.

Tom Gentile

Thanks.

Operator

Kristine. you, Thank

next Research. Myles comes your Our Walton from Wolfe open. line Myles, is from question now

Unidentified Analyst

good Hey, morning.

on [Indiscernible] for Myles. You have

couple quarter? guys inventory size cleanups Just you here. of the a fourth charge quick Can in aftermarket in the

Tom Gentile

repeat you that? could sorry, I'm

Unidentified Analyst

charge Sorry, in can inventory quarter size you and aftermarket? fourth the the

Tom Gentile

Inventory charge?

Mark Suchinski

had Sure. excess had of we a of It obsolete million. million, some couple was and fourth million dispose was was in $X the quarter. dollars, small. It -- that It we $X inventory to

in aftermarket, the $XXX you million of $XX million it's If about fourth revenue. quarter. think about We did

the overall aftermarket took; excess would -- a that probably XX%. we $X million charge or So of That in could that million inventory profitability. $X or impact excluding have on pretty been have big reduction margins

Unidentified Analyst

guess just as to Thank be And there's any in Great. then well? right. going charge pension All to quarter, Mark. mentioned size a you, first way you that the

Mark Suchinski

that that impacts We're At that we're $XXX have working this closure. of have point with the but time, deal in it. is million probably we'll and our thinking $XX and some we're final as finalizing of tax actuaries. excise also million, Again, we'll through somewhere that with to And part then component of between that. the non-cash

Unidentified Analyst

with you guess all an I in forward, into on one, guys going last that? talk agreement think increases And the believe June. how guidance that expires and you that just the margins that IAM forward, cost taking going do then And How, great. if are Okay, I cash have year? the about about the just given at for account potential all, for this impact we

Tom Gentile

June Right. and Well, into our our have potential projections any account XXrd that we IAM today. agreement impact taken provided on does we've expire in

that several So, we Louis Pratt have seen St. with Boeing ULA, & naturally and in concluded with Lockheed; other has forth. IAM so with Whitney; agreements the

impact taken So, we've projections into our today. in that account potential

Unidentified Analyst

you. Thank

Operator

Thank you.

Securities. comes Truist question line is Michael, Michael your from next open. now Ciarmoli from Our

Michael Ciarmoli

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

versus at It how really is that step two half just Or thinking but about you a look higher we guys the at I of deliveries. there XX%, much guess production. breaks. production of production going be like mean, It said doesn't XXX, rates the rate I in were second monthly potentially the anticipating rate's implied year? sounds should So, to the too imply I in that? function you increase are thought

Tom Gentile

Well, year. rates in the up go the production will half the second of

in that October. we'll break. That's in account go that to to is into production a August XX. XX, the of But We'll And then taken plan. number XXX. XX that's the a to year have we've we're terms -- rate the we'll So, break XX break total going we'll a this to in and and have produce have

you on the is rates, not on And rate given of a number total what of the out break always but to The obviously, cycling deliveries is total add I what in point, numbers but it's period. it think really deliveries. the when at at, -- matters, any and focus important you're

Mark Suchinski

rate the happens that Michael, very year. the break second just I add would late in

very -- in on And deliveries. of that benefit that The capital effect so have, has break there capital is but really XXXX. will take deliveries mostly we'll impact Working some rate little investment in

Michael Ciarmoli

there keep just it. cost, another one. makes anything you that mean, these most pricing as have XXXX. out with I are I price I there the passing with That renegotiate line taker. contracts? increases. you haul at any be guys or then these sense. mean I Got to through the here the we And do here hearing getting new you just of XXX mean, guys these prices opportunities price unit contracts? seem suppliers to for mean, stuck a structurally mentioned blocks? XX mean the Or long is you I on

Tom Gentile

we've that in is market way on pricing with in on customers our we're of we're said XXXX. we're the the all the the XXX of it's set current about in to conditions. our The as constant environment the programs, market always customers out to and discussions discussions Well, with the And the terms rate all But pressures all always indexed that facing. current past. in contract,

Michael Ciarmoli

Thanks Okay, lot got a guys. it.

Operator

Thank Michael. you,

from Poponak line is open. Noah now Sachs. from comes question Noah, next Our Goldman your

Noah Poponak

morning Hey everybody. good

on stay that to going discussion. Just MAX

delivering you there don't those that you're correct? and want get system before sustainably one, going you you're the but that significant breaks the late XX, in two, of on there actually then rate you're doing of confirm what to is year? XX generate system kind in amount are that a because the them you Just for MAX this break saying year; really on there that units there, Is and to your

Mark Suchinski

year, In XX happens late it that is the in way month correct. the a particular,

Noah Poponak

running XXXX, about shipments we Okay. But then as rate? think XX off should of underlying that

Tom Gentile

XXXX. and Yes, the that XX end continue rate throughout to year at we'd we'll at expect

Noah Poponak

I ahead ahead conservative always but still supply of right interesting but figure little physically don't a Boeing, to trying produce of you Okay. the of the wants know out and of know a difficult dynamic to get of you mean, and be health And don't word, I to I bit cautious there's is Boeing -- and want or chain. Boeing everybody the

if into a the month scenario supply year? sometime And you're what year. maybe anyway. little I'll the is this But from they the of high latest foot to compared guess the ask there a occur XX mean, that through I entire they're saying half how I it and do can just is better, break Boeing on sort of chain when at a rate I back MAX there's breaks they XXs still in

Tom Gentile

that a these schedule of units produce we and to that breaks what we Right. they have schedule their we've do in us have -- I the wanted you'll we to to them. give -- production to rate they we and you is is the production place in have mean year. from how what here schedules right is our customer. now determine have given for that's be But put have in to XXX the rate long Well, what talk half back advance. you And What have two is to

production So, schedule to give our clarity and we transparency just what into wanted is. you

Mark Suchinski

has it XXXX, would in No, Boeing by month. aircraft to go per of think going XX way. they're to this said I also

to XX frame. time months getting that we're -- away from close that's So,

per some So, rate have order hit to be breaks. month, to aircraft there's time, going in in point to at XX

of All that happen can in XXXX.

our I do is at focused from Boeing on in they and decision Boeing they're do saying to to contractual think, is their customers, what pull again, to us again, we what to their point this delivering So meet do. what deliver have time. what that's they We're to commitments

Tom rate breaks. two talked But again, about

year, benefit really bring real capital, this until get us doesn't in one place help will the take standpoint and other them deliveries but of to the XXXX. working people delivery the XXX One will from a

Noah Poponak

coming better? you ready the saying, you, Boeing on we're gunning coming And Or it bottlenecks just to let's Boeing hey, those that actually and will maybe are and bottlenecks Is chain one to now the bottlenecks is Are topic. more help the for just along? Okay. to go? it supply aren't saying, pull start that and

Tom Gentile

No, less chain shortages measure were than or some at I XXXX. times state, just the shortages as they're is they they steady it in of be better. supply would The than three two what I elevated, our half but what And are higher part -- at is point would still shortages. way said,

chain. seen So, we've improvement in supply definitely the

those having suppliers. distress with that individual actually about that right a we're suppliers suppliers Now the out Spirit as We people there's often, in always well dozen are way, with. we're XX with now on And work said, People Boeing about working on by in closely the deep the to have as field, working deliveries. that contractors, rate

we bringing in some And are addition on to work that, working in.

We other suppliers move help and capacity fab cover, have that unit, which load level have to can we to the our also work system.

be, But the supply I than half been shortages and they can higher that's they why should so were some improvement say chain. but the what still are there's they're of in than less

Noah Poponak

you Thank detail. the all Appreciate

Operator

Noah. Thank you,

our have Baird. Arment We your line question is next Peter from from Peter, open. now

Peter Arment

kind going like more just of kind they've that of on pretty historically, August eventually then rate Hey increments. and close. XX October always least much. we've six-month just and to little understood a so of quickly, kind methodically It at Thanks the seems Tom, breaks XX, done

how on wrong assumption about my Just I'm thinking maybe in whether increments? those to highlight want rate or that you if you're break

Tom Gentile

closer do. to headcount getting investment why up do and practice than to is normally cycling there XX help -- can XX August to yes will the then in XX all made October. It closer Peter. essentially us we now thanks, the year, But go that's we would in in It's than we we've that so that the break

a do now detail Boeing, right lot XX confident it and So, in have plan. of with was that that little when it's advance have heads and of the that, which we a we discussed we both would the closer, but in were is because that, well could agreed we we normally we them,

Peter Arment

color. the Tom. Appreciate Thanks

Tom Gentile

thank you.

Operator

Thank you.

We have gentlemen, questions line. further on for joining. Ladies the concludes today's no Thank and you this call.

disconnect your now lines. may You

Spirit AeroSystems (SPR) 7 Feb 232022 Q4 Earnings call transcript