Spirit AeroSystems has overcome issues that prompted it to make late and out-of-sequence deliveries of 737 aircraft fuselages to Boeing earlier this year, its top executive said Wednesday.
“We made great progress continuing to improve the consistency and efficiency of 737 deliveries during the quarter, and are now fully recovered to our delivery schedule,” Spirit CEO Tom Gentile said on a third quarter 2018 earnings conference call with analysts.
“We are shipping 737 fuselages out of our factory on master schedule, every day, and in sequence,” Gentile added. “We have rebuilt buffer into the system so there is no risk of disruption to the customer.”
Earlier this year Spirit revealed it was late to deliver 737 fuselages around the same time it was adjusting to Boeing’s increased 737 production rate, which rose from 47 to 52 airplanes a month. Spirit attributed the late deliveries to a host of factors including integrating assembly of the new 737 Max alongside the older 737 Next Generation, hiring and training new workers for higher production and problems within its own supply chain.
“2018 has been a challenging year from an operations perspective,” Gentile said.
But he thinks those challenges are behind the company even as it faces an even higher 737 production rate next year, when the Wichita plant will produce 57 fuselages a month.
Gentile told analysts that Spirit will avoid problems of the past rate increase this time around. He said the company has hired 90 percent of the production workers it will need for the next rate increase and provided more training. As for the supply chain problems, Spirit is making more of the parts it previously outsourced. Spirit also has increased its “dual sourcing” of parts — that is, hiring two suppliers to make a single part.
“With this level of preparation, we are very confident in our ability to execute a smooth rate break to 57 aircraft per month,” Gentile said.
On the hour-long call, Gentile also addressed the issue behind Spirit postponing its $650 million acquisition of Belgium aircraft parts supplier Asco last week. Spirit withdrew what amounts to an application for European Commission approval of the deal after it said the governing body found “issues” with it.
Those issues, Gentile said, apparently center on how Airbus dealt with suppliers from different countries decades ago, by grouping them together in associations, or consortiums.
Asco is currently a supplier to the Airbus A320 and A350 jetliners, as is Spirit.
“Back in the ’70s Airbus set up these consortiums in each of the countries so they would only have to deal with one entity in each country,” Gentile said. “And so when the (European) Commission looked at that, you know this is obviously a very old structure, that’s what they asked us to look at. So we’ve been working very constructively with Airbus on this topic, and we’re going to re-look at the structure of this . . . entity and resolve it. We understand the issues very clearly so we don’t expect that to be too long, and as I said, we remain confident we can get the deal closed once we address the issues.”
Gentile added approval of the deal could take 25 days after it is resubmitted to the European Commission, and that process may even extend into early next year.
In the third quarter of 2018, Spirit posted a 4 percent increase in revenue, to $1.8 billion, and a 15 percent increase in profit compared with the same quarter last year.