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Spirit AeroSystems, Boeing finalize supply contract

  • The Wichita Eagle
  • Published Wednesday, April 16, 2014, at 5:30 p.m.
  • Updated Thursday, April 17, 2014, at 11:43 a.m.

Editor's note: This story has been changed to correct the attribution of a quote about the partnership between Boeing and Spirit.

Spirit AeroSystems has finalized a new long-term supply agreement with Boeing, which covers pricing for the structures Spirit builds for Boeing commercial airplanes, according to a filing with the Securities and Exchange Commission.

The current agreement, which expired last year, was forged when Spirit became a company in 2005 after Boeing sold its Wichita commercial aircraft division. It runs through 2015.

That original agreement had been extended until a new one could be reached.

“Spirit is proud to partner with our Boeing customer and pleased to have this agreement in place,” a Spirit spokesman said in an e-mail. “We view it as a positive outcome for both partners.”

The new contract establishes terms for pricing Spirit’s work on Boeing’s 737, 747, 767 and 777 programs, according to the filing. It does not include the 777X and 737 MAX development programs.

It does include the implementation of a production rate of up to 47 Boeing 737s per month. Boeing plans to raise production from 42 per month to 47 per month in 2017 because of rising demand.

Spirit builds the fuselage, pylons and thrust reversers of the popular single-aisle airliner in Wichita. It builds wing components for the plane at its Tulsa facility.

The agreement also suspends 12 months of repayments Spirit must make on advances from Boeing for the 787 Dreamliner program. Repayments will be applied beginning with the 1,001st Dreamliner that comes off the line.

Prices will continue to be adjusted each year based on quantities, the filing said. Prices per unit are higher at lower volumes.

The new contract with Boeing appears to allow solid profitability for the 737 and 777 airliners, Cowen and Co. analyst Cai von Rumohr wrote in a note to investors.

The short length of the agreement also avoids locking Spirit into a “potentially risky long term fixed price agreement,” von Rumohr wrote.

“We assume that (Spirit) had to agree to somewhat lower prices,” he wrote. But those were already factored into Spirit’s 2014 earnings per share guidance of $2.50 to $2.65 a share.

The temporary suspension of 787 advance repayments will bolster Spirit’s cash flow. But that will likely be largely offset by the investment it must make to support 737 production increases to 47 per month, he wrote.

The full text of the memo of understanding reached with Boeing will be filed with the SEC as an exhibit with Spirit’s second-quarter financial report, the filing said.

Reach Molly McMillin at 316-269-6708 or mmcmillin@wichitaeagle.com. Follow her on Twitter: @mmcmillin.

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