After six years, Spirit is player in global market

PARIS — Inside Spirit AeroSystems' busy chalet at the Paris Air Show last month, CEO Jeff Turner kept a sheaf of papers at hand.

On it was a frenetic schedule of back-to-back meetings with suppliers, customers, partners and others from the United States, Europe and around the world.

In the six years since it was formed in Wichita, Spirit has become a global company with customers, suppliers and plants worldwide.

Spirit operates multiple facilities in the U.S. along with sites in Scotland, England, France and Malaysia. It has partnerships with companies in Russia and China.

"We need to be where the customers need us to be and where we can provide products and services most efficiently and effectively, wherever that happens to be," Turner said.

The company employs 14,800 people, including 10,400 in Wichita, its largest site.

Spirit's local headquarters remains widely known for its long history building parts for all Boeing commercial airplanes. Boeing sold the operations in 2005 to Onex Corp., and Spirit became a stand-alone company.

Today, it's the state's largest private employer, a publicly traded company, and the world's largest supplier of aerostructures.

Spirit's global nature was apparent at the Paris Air Show in June, where it was one of more than 2,100 exhibitors from 45 countries.

Spirit's revenue for 2010 was $4.17 billion, up from $4.07 billion in 2009. Net income, meanwhile, was $219 million, up from $192 million.

Boeing work still makes up 83 percent of Spirit's revenue, but Airbus is its largest non-U.S. customer.

It also does work for a number of customers in and out of the U.S. —Bombardier, Gulfstream, Sikorsky, Mitsubishi and Rolls Royce.

Aviation is a global industry, said Andris Kalnins, senior vice president for Moody's Investors Service.

"I think they're doing what is probably... wise," he said of Spirit's global efforts.

Its newest facility is a final assembly plant in St. Nazaire, France, which opened last year to take on Airbus A350 XWB (extra wide body) work.

This month, Spirit rolled out the first test pylon for Bombardier Aerospace's CSeries commercial aircraft. It's the first contract between Spirit and Montreal-based Bombardier.

"This cements our position as a good supplier for the OEMs (original equipment manufacturers)," said John Pilla, senior vice president and general manager for Spirit's propulsion business. "I believe Spirit's positioned very well to expand our customer base."

Going independent

When Spirit was formed in 2005, it faced a "ginormous" challenge, said Teal Group analyst Richard Aboulafia.

The business had been part of Boeing's cost structure for decades and was "very good" at what it did, Aboulafia said.

Then they were "cast... off on their own, and (suddenly) they have to be a profit and loss center responsive to the challenge of bringing in new business and executing on new programs in a profitable way," he said.

"That's a huge challenge," Aboulafia said. A few hiccups aside, "they seem to be pulling it off."

As a stand-alone company, Spirit has to build structures more efficiently than its customers or another supplier, Aboulafia said.

"To be able to do that and make a buck at it is the secret sauce," he said.

Spirit's Wichita roots go back to the 1920s when it was the former Stearman Aircraft Co. Boeing bought the company from Lloyd Stearman in 1929.

In the sale to Onex, valued at $1.2 billion, Spirit had to disconnect from Boeing, reconnect as a Boeing supplier and stand up as an independent company.

The divestiture was a huge undertaking with thousands of issues to consider.

More than 2,500 contracts with suppliers had to be converted or renegotiated; finances that were intertwined had to be split, and about 400 government and regulatory licenses and permits had to be converted to the new company.

There were other issues such as shipping, access to the flight line, surplus sales, government relations, badges, parking — even changing the letterhead on stationery and business cards.

The changes also meant about 1,100 Boeing employees didn't receive job offers with the new company.

From the start, the goal has been to grow, diversify its customers and diversify geographically, Turner said.

Spirit's strategy is to "be where we need to be in the world to be cost-effective and to deliver (parts and services) to our customers where they need them at top quality and competitive pricing," Turner said.

Its goals are good, Aboulafia said.

"You have to diversify into being a global structures provider," Aboulafia said. "It pays to have offshore production that has global accounts."

A key acquisition

Spirit's 2006 purchase of BAE Systems' aerostructures division in the United Kingdom, shortly after the company was founded, was a key acquisition, Aboulafia said.

The division, which produces structures for Boeing, Airbus and Hawker Beechcraft, brought in new work and customers. About 75 percent of the Prestwick site's work is for Airbus.

It "gives them a seat at the table with Airbus," Aboulafia said. "And that's a good thing."

That seat has led to additional contracts from Airbus on the A350 commercial jetliner in a deal worth $2.75 billion over the life of the program, the company has said.

The A350 contract was a big win for Spirit, Aboulafia said.

"That's serious evidence of being an agnostic partner and not just tied to Boeing," he said.

Spirit is designing and building the center fuselage, wing leading edge and composite front spar for the A350 jetliner. Spars are the main sections of a wing.

"We wouldn't have won the Section 15 (fuselage section) without being able to leverage the European business," said Neil McManus, vice president and managing director of Spirit's Europe facilities who's based in Prestwick, Scotland.

It also gained work because of a cost-reduction initiative.

"In return, we got two A350 contracts and extended our single-aisle (jetliner) contracts," as part of a bundled contract, McManus said.

Part of the cost reduction came from sending composite assemblies to Spirit's plant in Malaysia and some metallic assembly work to India.

Investing tens of millions of dollars to be able to produce a wing spar at its Kinston, N.C., plant was an important move, McManus said. In the past, Spirit had never produced a spar.

"Fundamental to your future with Airbus is your ability to produce a spar," McManus said. "It's absolutely significant that Spirit set up a spar capability in North Carolina."

Its 500,000 square-foot plant in Kinston, a town of about 24,000 people, opened in mid-2010.

When deciding where to set up operations, there's a wide variety of factors to consider, Turner said.

Those include costs, availability of capital — including incentives — delivery resources, proximity to suppliers and the availability of a plant, equipment and skilled work force, Turner said.

Sometimes, access to a port is key. That was a main factor in setting up facilities in Kinston. So was a package of incentives from the state of North Carolina.

"Wichita has many great things," Aboulafia said. "It does not have a port."

Global thinking

In the big picture, being a global company means thinking globally, Turner said.

"Because (something) works in one location... it doesn't mean it's going to work everywhere," Turner said. "You've got to pay attention to the differences."

When a company has a long history in one location or in one country — like Spirit has had in Wichita — it can be a challenge.

"If you're in Prestwick or Malaysia, everything runs on Wichita time," Turner said. "We try to be sensitive of that."

At Boeing, Turner knew what it was like being a non-core, remote site of a large company.

"The biggest challenge that I find is you want them to feel part of the whole, but you want them also to have a pride in their own site," Turner said.

"If you push it too far, then you get the sites feeling independent of one another. If you don't push it enough, then you end up with the sites feeling completely subservient to the corporate center."

It also must pay attention to legal and cultural differences at its global sites.

Some on the Spirit team questioned putting a facility in France, said Dan Wheeler, vice president and general manager for Spirit's North Carolina business unit.

They said, "Do you know how difficult that's going to be? The social rules... are different; compensation is different; the hours people work and the labor laws."

While that's true, the site has hired a French law firm to help it maneuver through the labor laws, one of the biggest differences from U.S. practices. And workers on the staff help the company understand the cultural and social differences.

One difference between the sites is the need to adapt to major differences between work done for Airbus and work for Boeing.

"When you get down to it, building the airplane is building the airplane," Russell said. "But the business models and the processes and the procedures are significantly different.... What one customer sees as very important, the other doesn't care that much about."

'Forward thinking'

In the future, Spirit plans to grow its sites and digest the work it has taken on.

"There's a ton of work to do with the customers and actively, efficiently executing what we have," Turner said.

Boeing, for example, is increasing production of a key Spirit program, the popular 737, to 42 planes a month.

As production demands increase for existing and new programs, Spirit may shift where it does some of the work, Turner said.

For example, the company announced this month a move of Gulfstream G280 wing work from Tulsa to Kinston.

One reason is to make more room in Tulsa for the Gulfstream G650 program, which is projected to grow substantially, Turner said.

"I look at all our sites to expand," he said.

The company can't do everything in Wichita.

"If we ever did, we would begin to shrivel," Turner said.

Spirit can't become static, said Kalnins, the Moody's vice president.

"You really have to be quick on your feet, and you've got to be forward thinking," Kalnins said."

Will Spirit acquire other businesses in the future?

"That is definitely a possibility," Turner said, although "certainly there is nothing to announce."

"We will be on the lookout," he said. "We've looked at several, (but) we've only done one."

This story was originally published July 31, 2011 at 12:00 AM with the headline "After six years, Spirit is player in global market."