Even as the assembly lines at Spirit AeroSystems’ plant on South Oliver are churning out big sections of Boeing airliners — some at a record pace — a small group of people led by its former chief financial officer are focused on diversifying its business into defense work.
The Wichita company that makes large pieces of all Boeing airliners — including the fuselage of Boeing’s top-selling 737 — as well as some Airbus jets, is about two years into an effort to increase its work on military programs.
Spirit officials think the company’s expertise in designing and building parts of passenger jets can be adapted to military aircraft.
“Right now we are very well positioned for long-term growth in defense,” said Phil Anderson, Spirit senior vice president for defense. “We have next-generation products to support all four (U.S. military) branches.”
Analysts said it’s an important move for Spirit, which in its first 10 years has worked almost exclusively commercial aviation.
“It falls under the broader heading of bringing in new business,” said Richard Aboulafia, vice president for analysis at the Teal Group. “It’s something they have to do and something they’re going to continue to do.”
But Aboulafia and others said expanding into the defense business brings new challenges for the company. It’s also a tough business to break into at the moment.
“It’s true that of the two, huge segments (of aerospace), the commercial side of aerospace, that’s booming right now, or mostly booming,” said Ray Jaworowski, senior aerospace analyst at Forecast International. “The military segment is on the decline and will probably continue to be for the next several years.”
Building the foundation
Anderson is the Spirit’s point person on the defense effort.
Once the company’s CFO under former chief executive Jeff Turner, Anderson was appointed to the defense role after president and CEO Larry Lawson joined the company in April 2013.
Lawson brought to Spirit an extensive background in military aircraft programs. That included 26 years at Lockheed Martin where he oversaw military aircraft production programs such as the F-35, F-22 and F-16 fighter jets, and the C-130J and C-5 transports.
Spirit also was doing some defense work prior to Lawson’s arrival.
It was already engaged in work on the Navy’s P-8A Poseidon maritime surveillance jet, which is built from a Boeing 737 airframe. Anderson said Spirit is in “the front end of the program” and that there are international military customers for the airplane, too, including Australia, the United Kingdom and India.
Spirit also is doing work on Boeing’s new KC-46 air refueling tanker for the Air Force. That airplane is based off the 767 twin-aisle airliner, though neither it nor the P-8 share exactly all the same parts or configurations that Spirit delivers to Boeing for passenger airlines.
“It is not just a standard commercial aircraft,” Anderson said.
Also before Lawson arrived, Spirit had begun work on Sikorsky’s CH-53K heavy lift helicopter, of which Spirit was contracted to build the 30-foot-long composite fuselage of the helicopter slated for the Marine Corps. Spirit has delivered 11 fuselages to Sikorsky so far, Anderson said.
Once Lawson had settled into his role as Spirit’s top leader, he directed Anderson to widen the scope of its defense work.
“He’s committed to it and committed resources to it,” Anderson said. “He saw the value, the competitive advantage.”
To that end, Anderson has assembled a team of 10 people who focus exclusively on supporting and developing additional defense work.
“We’re marketing to all the defense primes … to try to grow the defense business,” he said.
One of the team’s first successes is the composite fuselage that Spirit designed and built for Bell Helicopter.
In late September, Spirit delivered the first V-280 Valor tilt-rotor aircraft fuselage to Bell at a ceremony in Wichita. The V-280 is Bell’s answer to the Army’s next generation of airborne medium-class troop carriers.
Bell and Lockheed Martin are competing against a Boeing and Sikorsky team in the Department of Defense’s Future Vertical Lift program, which aims to replace about 2,000 medium-class utility and attack helicopters in the Army’s fleet. That program hasn’t yet been funded, nor has the Defense Department awarded a contract on it.
“That’s a program that may or may not be funded and if it is, you may not win it,” Aboulafia said.
But, Aboulafia noted, in the defense business a company has to risk money developing something that may or may not come to fruition, in hopes that the program — and the payout — materializes.
It’s a game you have to play, but it’s a very different world than the commercial world.
Richard Aboulafia, Teal Group analyst
“It’s a game you have to play, but it’s a very different world than the commercial world,” he said.
The Valor’s fuselage was designed and manufactured by Spirit in less than two years at its Rapid Prototype Facility inside a nearly 280,000-square-foot building it calls the engineering lab. Much of its research and development work takes place there.
Anderson said Spirit pulled a team of engineers and mechanics from the ranks of its 11,000 Wichita employees to conceive and build the Valor’s fuselage.
John Garrison, who was Bell’s chief executive until he announced in October he was leaving to join Terex Corp. as CEO, praised Spirit’s speed in developing the Valor’s fuselage at the September ceremony.
“What Spirit was able to do here … was to go from the design to building this in 22 months, which is frankly light speed under the existing DoD process,” Garrison said at the Valor fuselage roll-out ceremony.
Anderson said he has quantifiable targets to achieve in Spirit’s defense growth, but he won’t publicly share them.
“Today it’s less than 5 percent,” Anderson said of how much defense contributes to Spirit’s total revenue, which was $1.59 billion in the third quarter of 2015. “I have internal goals to the board and Larry (Lawson) over five years, and we are on track.”
Aboulafia said if Anderson doubles Spirit’s defense revenue in five years, it would be noteworthy.
“Let’s say they got to 10 percent,” Aboulafia said. “That would be a pretty impressive achievement.”
Anderson said he is optimistic where the defense business is tracking, and between the Valor, the Sikorsky Marine helicopter, the P-8A Poseidon and KC-46 tanker, it’s a strong base to build from.
If you look at that mosaic … it’s pretty good progress in the last two years for building the platform for defense growth at Spirit.
Phil Anderson, Spirit AeroSystems senior vice president for defense
“If you look at that mosaic … it’s pretty good progress in the last two years for building the platform for defense growth at Spirit,” Anderson said.
But analysts said because the defense business, especially in the U.S., is lackluster right now, the choices Spirit has to get into new military aircraft programs are few.
Analysts said the obvious one would be the long-range strike bomber contract that the Defense Department awarded in late October to Northrop Grumman. Jaworowski, of Forecast International, said the contract has been delayed because Boeing and Lockheed have protested the award, and a ruling on the protest likely won’t come before February 2016.
He and Aboulafia noted that none of the suppliers to the new bomber have been publicly announced.
“What I would be doing now is looking very closely at the only thing that’s out there: the new bomber program,” Aboulafia said, adding that even though suppliers haven’t been publicly identified, there’s a chance that “Spirit’s got something” on that program.
Anderson said Spirit “will never comment on prospective business” when asked whether the company was pursuing work on the new bomber.
Despite a dearth of new military aircraft programs, there are other places Spirit can look to prop its defense work.
Jaworowski said military rotorcraft beyond the V-280 and CH-53K could provide some opportunities.
“If you look at the types of conflicts going on in the world today, they all essentially involve the heavy use of helicopters,” Jaworowski said.
There also remain some chances for military aircraft work internationally, he said, such as in the Middle East, South Asia and East Asia.
And then there are efforts, particularly in the U.S., to extend the life of existing military aircraft that could provide Spirit some work on upgrading them, Jaworowski said.
“That’s certainly a function of the budgetary environment, especially in the U.S. and it’s been on-going for a number of years now,” he said. “You have to get as much life as possible out of the existing fleet and it becomes a fairly robust market in service-life expansion programs.”
Anderson said despite the “less is more” defense environment, Spirit will continue pushing for a greater share of defense work.
“It’s not going to be 50-50 anytime soon,” he said.
But Spirit will increase its share of defense work, that much Anderson is sure.
“There’s not a day that goes by where I don’t think about how can we sustain our competitive advantage,” he said.
“We’re listening to the customer. We’re working with the customer. We’re making a commitment.”
Spirit’s major defense work
Spirit AeroSystems hopes to use the defense programs it has participated in so far to build a larger portfolio of defense work
▪ P-8A Poseidon: Spirit builds the fuselage of the Navy surveillance and anti-submarine jet, which is based off the Boeing 737-800. Boeing is under contract to deliver 62 of the airplanes to the Navy, with 31 deliveries completed.
▪ KC-46A Pegasus air refueling tanker: Spirit builds the forward fuselage and other parts of the next-generation tanker that is based off the Boeing 767. Boeing plans to manufacture 179 tankers for the Air Force.
▪ CH-53K King Stallion helicopter: Spirit builds the composite fuselage of the next-generation heavy lift helicopter destined for the Marine Corps. Spirit has delivered 11 of the fuselages to Sikorsky, which is expected to deliver up to 200 of the helicopters to the Marines.
▪ V-280 Valor tilt-rotor: Spirit delivered the first fuselage of the Bell Helicopter-Lockheed Martin prototype aimed to compete in the Army’s Future Vertical Lift program, which aims to replace the Army’s fleet of 2,000 medium-class utility and attack helicopters. The Army program has not been funded nor has a contract been awarded.