Spirit posts higher revenue, profits on strong demand for airliners
11/01/2013 9:52 AM
08/08/2014 10:19 AM
Spirit AeroSystems recorded higher revenue and profits in the third quarter from continued strong demand for commercial airliners, even as it took pre-tax charges of $124 million, primarily related to the A350 program.
The earnings for the quarter, however, weren’t enough to erase a loss for the first nine months of the year.
For the first nine months, Spirit recorded revenue of $4.47 billion, up 12 percent from $3.97 billion a year ago. It recorded losses of $35 million for the first nine months, compared with a loss of $26 million for the same time a year ago.
Spirit recorded revenue of $1.5 billion in the third quarter, up 10 percent from $1.365 billion for the same time a year ago, driven by higher production volumes, the company said Friday. Net income totaled $94 million in the quarter, compared with a loss of $134 million for the same time last year.
The company also reported Friday that it is making progress on the sale of its Tulsa division.
“We knew there would be healthy interest in Tulsa,” Spirit CEO Larry Lawson told analysts in a conference call. “I think we were a bit surprised” by how much interest there has been.
The large group of interested parties has been narrowed, and Spirit has selected “what we think are the best buyers going forward,” Lawson said.
Closing a deal, however, will most likely extend into 2014, he said.
Spirit also announced this week that it intends to sell its 50 percent interest in its joint venture with Progresstech Group of Companies of Moscow, a joint venture that began in 2007.
The sale is to “better align resources across the company to meet customer demands,” the company said.
Of the pre-tax charges Spirit took for the quarter, $112 million were related to the A350 XWB fuselage program, the company said.
The charge included $79 million for recurring A350 work, which was blamed on “early development discovery and changes and associated production inefficiencies, and higher test and transportation costs across the buy,” and $33 million on non-recurring work, driven by engineering efforts on the A350-1000, a derivative program.
Spirit also took a $6 million charge for the Gulfstream G280 wing program and a $6 million charge on “low volume large commercial programs.”
Charges related to the A350 contracts were less than expected, Sterne Agee analyst Peter Arment said in an analyst’s note Friday.
“However, given the strategic review will not be completed until the end of (fourth quarter 2013), all program costs are not yet known,” Agee wrote. “While we expect management is aggressively addressing costs, we remain on the sidelines pending a better understanding of (Spirit’s) future profit potential.”
The charge is troubling, RBC Capital Markets analyst Robert Stallard wrote in an analyst note Friday.
He notes that further charges on the A350 program can’t be ruled out as the A350 has yet to enter service and other derivatives of the aircraft are in the works.
“Another quarter – another charge,” Stallard wrote.
Spirit is never happy about taking a charge, Lawson said. But it is early in the A350 program. So far, Spirit has delivered seven fusleage sections to Airbus.
“We’re making sure we keep this project on schedule,” Lawon said, adding that “I believe we’re doing the right things.”
Spirit will need to make investments in space and equipment in order to keep up with Boeing’s plan to increase production of its popular 737 single-aisle airplane from 42 a month to 47 a month in 2017.
Boeing announced plans to raise 737 production this week.
To keep up with the expanded work, “We’ve looked at a whole host of options,” Lawson said.
Spirit must invest in tooling, and it will need space. It also must improve productivity of the entire enterprise, he said.
In May, Lawson announced that the company is conducting a comprehensive strategic and financial review, which it expects to conclude in the fourth quarter.
Spirit’s focus is to reduce costs and balance capital needs.
It recently cut its salaried workforce. And there have been a number of internal management changes, Lawson said.
Spirit also is making decisions about what the company will continue to build in-house versus what it will buy from others, Lawson told analysts Friday.
“We made progress,” Lawson said. “There’s a lot more to do. Please bear in mind that it takes time to implement those changes and for them to generate results. … We believe we’re well positioned to realize the commercial aerospace up-cycle.”
Editor's Choice Videos
Join the Discussion
The Wichita Eagle is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.