February 23, 2013

Spirit pursues simplification strategy

Spirit AeroSystems is a company in transition.

Spirit AeroSystems is a company in transition.

The aerostructures supplier is moving from a strategy of diversification to one of simplification.

Spirit had a strong need to expand its customer base when it formed in 2005 after Boeing sold its Wichita commercial aircraft division, Phil Anderson, Spirit’s chief financial officer, told analysts and investors at the Barclays Industrial Select Conference this week.

In its first two years, Spirit grew from one customer, Boeing, adding seven customers with new development programs.

“All of which was the right strategy for the time,” Anderson said, according to a Seeking Alpha transcript of his remarks.

Spirit was a new company learning how seven new customers design airplanes in the marketplace with a fair amount of complexity, he said.

The new programs were timed to be completed in a serial fashion.

But as program schedules slid, getting the resources required to accomplish all the work became challenging, he said.

Now Spirit is focused on its current customers, execution and “creating value” from diversification.

One of Anderson’s jobs has been to improve existing contracts and to execute inside the contracts.

Spirit’s contract for the Airbus A350 program “is a better executed contract than maybe some of the other ones,” said Anderson, who watched the process unfold. “(It’s) more thoughtful. We got a lot of collaboration with Airbus as we went through the process.”

The challenge continues to be in getting costs in line on development programs that are in the early stage of design and moving into production, he said.

Cash flows aren’t robust, but they are improving, Anderson said.

Today, Spirit’s biggest consumers of new program capital are the Boeing 787 Dreamliner program and the Airbus A350. This year will be one of the bigger years of “capital spend,” he said.

During the year, 787 production is to increase to 10 a month, A350 volumes are rising and 737 production is moving up to 42 per month.

Those production levels were set before federal officials grounded the 787 over battery problems. So far, the problems haven’t significantly affected suppliers or production, according to company officials.

Spirit’s biggest challenges on the A350 program include engineering changes and its supply chain, Anderson said.

It’s a “heavily procured” aircraft, Anderson said.

“We happen to have to go out and procure our A350 long-term contract (with suppliers) in a very busy supply chain with composite orientation on much of it,” he said.

Spirit has also faced challenges at its Tulsa, Okla., division.

The division was good at building parts, such as wing leading edge components.

It moved to designing and building parts and growing from 1,000 employees to more than 3,000.

“Being very candid … we overgrew the capability of the site, and we could have managed it probably a little better,” Anderson said.

David Coleal, general manager of Spirit’s fuselage group and of its North Carolina facility, is also now in charge of the division and is working on getting the site stabilized, he said.

Spirit is also doing contingency planning on the Boeing 787 in the wake of the battery problems.

Spirit builds the nose section and other sections of the plane.

“The customer’s demand is still there,” Anderson said. “They (Boeing) still want the product, and we’re still building the product.’

The battery is not installed in Wichita, but the power systems are.

“I think the Boeing Co. has a long history of solving technical issues,” Anderson said. “And so I think the chances are it’s short term, we hope. And it makes no sense to turn off supply chains in the short term. If it’s something more significant, if it turns out, then I think we’ll have to address that.”

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