Tuesday, August 6, 2024
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Spirit AeroSystems Holdings, Inc. has announced its financial results for the second quarter of 2024. The company reported revenues of $1.5 billion, an EPS of $(3.56), and an adjusted EPS of $(2.73). Operational cash usage stood at $566 million, while free cash flow usage totaled $597 million. These results highlight the effects of ongoing production and delivery process changes, along with increased costs and delays in the Boeing 737 program. Despite these challenges, Spirit AeroSystems remains focused on optimizing its operations and upholding its commitment to delivering high-quality aerospace components.
“This has been a dynamic and eventful period for the company, and I want to extend my gratitude to each employee for their dedication and hard work,” said Pat Shanahan, President and Chief Executive Officer, Spirit AeroSystems. “Their commitment, resilience and teamwork have driven meaningful improvements in safety, compliance and quality while continuing to meet our customer commitments.”
“While we have made significant improvements in the quality of our product, our financial results were negatively impacted by delivery delays as we continue to optimize the product verification process,” said Irene Esteves, Executive Vice President and Chief Financial Officer, Spirit AeroSystems. “We are focused on further institutionalizing this process while improving the overall quality of each unit we produce.”
Boeing 737 Program Update
In March 2024, Spirit AeroSystems and Boeing initiated a joint product verification process to ensure fuselage conformity before transporting them to Boeing’s final assembly site in Renton, Washington. This collaboration has caused delays in Spirit’s deliveries as both companies work to refine the process.
During the second quarter of 2024, Spirit delivered 27 Boeing 737 fuselages, fewer than expected. The production facilities operated at a rate of 31 aircraft per month, surpassing the rate of acceptance through the verification process, resulting in an accumulation of undelivered units in Wichita, Kansas. These delivery delays led to increased contract assets and inventory, which in turn resulted in higher operational cash usage. Once the units pass inspection and are accepted by Boeing, they will be marked as delivered, allowing Spirit to collect payments for these units.
Revenue
Spirit’s revenue for the second quarter of 2024 rose compared to the same period in 2023, driven by increased production activities on most Commercial programs and higher Defense and Space revenues. This growth was partially offset by lower production volume on the Boeing 737 program. Total deliveries dropped to 336 shipsets in the second quarter of 2024, down from 342 shipsets in the same period of 2023.
Spirit’s backlog at the end of the second quarter of 2024 stood at approximately $48 billion, encompassing work packages for all commercial platforms within the Airbus and Boeing backlogs.
Earnings
Operating loss for the second quarter of 2024 increased compared to the same period in 2023, primarily due to higher unfavorable changes in estimates.
In the second quarter of 2024, total changes in estimates included net forward losses of $214 million and unfavorable cumulative catch-up adjustments of $52 million for periods prior to the second quarter. The Boeing 787 program contributed $173 million to forward losses, primarily due to schedule changes and higher estimated supply chain costs, as disclosed in the first quarter of 2024. The Airbus A220 program accounted for $25 million in forward losses, mainly due to production performance and supply chain cost growth. Unfavorable cumulative catch-up adjustments were primarily related to the Boeing 737 and 777 programs, amounting to $28 million and $19 million, respectively. The Boeing 737 adjustments were driven by delivery delays related to the product verification system and higher costs maintained for a planned rate increase that has been delayed. The Boeing 777 adjustments were primarily due to schedule changes and higher production cost estimates. Excess capacity costs for the second quarter of 2024 were $46 million, compared to $53 million in the same period of 2023. In the second quarter of 2023, Spirit recognized $105 million in net forward losses and $22 million in unfavorable cumulative catch-up adjustments.
Second quarter 2024 EPS was $(3.56), compared to $(1.96) in the same period of 2023. Adjusted EPS* for the second quarter of 2024 was $(2.73), excluding the incremental deferred tax asset valuation allowance. In the same period of 2023, adjusted EPS* was $(1.46), also excluding the incremental deferred tax asset valuation allowance.
Cash
Cash from operations and free cash flow* in the second quarter of 2024 were negatively impacted by Boeing 737 delivery delays related to the joint production verification process. In the second quarter of 2023, cash from operations and free cash flow* were adversely affected by rework and disruption related to vertical fin attach fittings, a work stoppage caused by the International Association of Machinists and Aerospace Workers (IAM) strike, and expenditures for the anticipated increased production on the Boeing 737 program. The cash balance at the end of the second quarter of 2024 was $206 million.
Events in the first half of 2024 have significantly reduced projected revenue and cash flows for the year. These events include production and delivery process changes implemented by Boeing, lower than planned 737 production rates, and the lack of price increases on Airbus programs. Management has developed plans to improve liquidity as needed and expects these plans to be sufficient. These plans depend on finalizing active discussions related to the timing or amounts of repayment for certain customer advances and include executing the bridge term loan discussed in the Subsequent Events section below, as well as evaluating additional strategies to improve liquidity to support operations.
Subsequent Events
On June 30, 2024, the Company signed an Agreement and Plan of Merger (the “Merger Agreement”) with Boeing. Once completed, and subject to the terms and conditions of the Merger Agreement, the Company will become a wholly owned subsidiary of Boeing. The transaction is anticipated to close in mid-2025, contingent upon the divestiture of certain portions of Spirit’s business related to its supply contracts with Airbus SE, as well as other closing conditions, including shareholder approval and regulatory clearances.
On the same date, the Company entered into a term sheet with Airbus SE, agreeing to negotiate definitive agreements in good faith for Airbus SE or its affiliates to acquire certain Spirit Airbus program assets.
Additionally, on June 30, 2024, the Company finalized a delayed-draw bridge credit agreement, securing a senior secured delayed-draw bridge term loan facility of $350 million. On July 18, 2024, Spirit drew $200 million from this facility.