More money spent, fewer fuselages delivered during rocky Q1 for Spirit AeroSystems

Spirit AeroSystems burned through more cash and delivered fewer fuselages in the first three months of 2024 than it did over the same period last year.

In its first quarter financial report, released Tuesday, the Wichita-based manufacturing giant reported spending $444 million on operations — more than six times what it spent in Q1 2023.

Spirit delivered 307 shipsets compared to 346 last year, including a sizable reduction in Boeing 737 MAX deliveries from 95 to 44 shipsets.

“Events in the first quarter of 2024 have resulted in significant reductions in projected revenue and cash flows this year,” the release said. “These recent events include the production and delivery process changes implemented by Boeing and lower than planned 737 production rates following the in-flight Alaska Airlines incident and the inability to reach a conclusion to pricing negotiations with Airbus.”

Talks between Spirit and Boeing about buying back the beleaguered supplier are ongoing, Spirit reported.

“I am not at liberty to comment further,” interim CEO Pat Shanahan said in an earning call Tuesday, adding Spirit would disclose more “when and if” anything significant happens.

The prospects of a buyback have been complicated by Airbus, Spirit’s other major customer, reportedly calling for compensation if it has to take on money-losing operations.

Negative publicity plagued Spirit in Q1, beginning with the Jan. 5 mid-flight crisis when a faulty door plug on an Alaska Airlines 737 MAX blew out, forcing the plane to make an emergency landing.

After that, the Federal Aviation Administration took the unprecedented step of capping Boeing’s 737 MAX production rate at 38 planes per month. FAA Administrator Mike Whitaker has said that limit will remain in place until persistent quality issues improve.

An FAA audit of Spirit’s facilities for quality control found 28 things to be addressed, Shanahan said.

“I am very confident that every item has been addressed with a mitigating action and then our focus has really been the follow up. It’s one thing to have the action plan, the other is to make sure we are following through,” he said. “[This audit was] focused on things like tagging the storage parts and scrap materials . . . Our quality plan was to address more than what they had audited and those quality plans continue to progress and grow, week by week.”

Boeing and Spirit are now conducting joint product inspections prior to shipping fuselages to the Renton, Washington, facility, which has slowed the delivery rate. Spirit now says it expects to maintain a reduced rate of approximately 31 shipsets per month — several below regulators’ cap — for the rest of 2024.

Shanahan, in a news release, characterized the joint product verification with Boeing as “a significant accomplishment that we believe will enhance quality, eliminate rework, and benefit the entire production system between our companies.”

But Spirit acknowledges that “undelivered units have been built-up in Wichita, Kansas, resulting in higher levels of inventory and contract assets and lower operational cash flows.”

Last month, Boeing agreed to front $425 million in advance payments to Spirit to offset the supplier’s sputtering cash flow. As part of the deal, Spirit is providing Boeing with specified financial information on a weekly basis as buyback talks continue.

“Management has developed plans to pursue various options to improve liquidity as needed and expects these plans will sufficiently improve the Company’s liquidity needs,” the release states without providing specifics.

Spirit’s overall revenues increased by 19% year-over-year to just over $1.7 billion, in part due to a 33% rise in Defense and Space revenue, which climbed from $188.4 million in Q1 2023 to $250.8 million this year.

But Spirit also experienced $495.4 million in net forward losses for Q1, compared to $110 million over the same period last year. Those setbacks were primarily driven by the Airbus A350 and A220 programs, which netted losses of $280.8 million and $167.0 million, respectively, after Spirit failed to lock in a deal to renegotiate prices with Airbus.

Spirit disclosed that Boeing has also indicated a production increase to the 787 Dreamliner program will be slower than expected, resulting in an anticipated forward loss of approximately $50 to $60 million in the second quarter.

The company continues to withhold its 2024 financial outlook amid an uncertain future.

“Spirit will not be providing guidance until there is further clarity on the acquisition discussions with Boeing, 737 MAX delivery and production timing, as well as ongoing commercial negotiations with Airbus,” the release states.

Spirit remains locked in several major legal battles, including a class action federal lawsuit in which company shareholders allege Spirit concealed serious defects to maximize production, disregarding safety concerns raised by former employees. One whistleblower named in that suit, a former Wichita quality auditor named Joshua Dean, died abruptly last week at age 45.

Spirit has also filed a lawsuit against Texas Attorney General Ken Paxton in an effort to conceal documents detailing manufacturing issues that Paxton instructed the company to turn over as part of a probe he opened in March. Spirit has said Paxton’s request “violates” its “Fourth and Fourteenth Amendment right to be free from unreasonable searches and seizures.”

Contributing: Michael Stavola with The Eagle