Spirit AeroSystems looking to bring work in-house as it considers outsourcing

Spirit AeroSystems would like to bring some large-scale assembly work done by outside suppliers back in-house, Spirit’s top executive said Monday.

At the same time, the company is working to outsource other work.

“When I look at our business, there are things in our business that other people do better than us,” Spirit CEO Larry Lawson said during a luncheon speech to the Rotary Club of Wichita.

The amount of work leaving and the amount coming back should balance out; however, “it’s not perfect arithmetic in terms of magnitude,” Lawson said after the meeting.

The nose wheel well of the 787 is part of the work that could be coming back inside the company, Lawson said. It’s part of the work – worth hundreds of millions, Lawson said – that could be coming back. He declined to elaborate on the details of the other work.

Lawson declined to comment on a lawsuit filed by the Machinists union in federal court over Spirit’s plans to outsource union jobs. A hearing has been set before a federal judge for next week in that case.

Spirit plans to sell its entire fabrication operation and use outside contractors in tool supply, shipping, paint stores and in other support functions, union officials have said.

The company has said Spirit is constantly evaluating the strategic vision for our company in what is core to its future growth, what are its best at and what differentiates it in the marketplace? That evaluation is ongoing, a company representative said at the time the suit was filed.

Spirit has been going through a transformation, Lawson told the Rotary Club.

Demand for commercial aircraft has generated lots of revenue.

But that success has also created challenges, Lawson said. Spirit has grown, but it hasn’t become a lot more profitable, he said.

Lawson described himself as a fundamentalist.

“You can’t manage something you can’t understand,” he said.

Shortly after he took the reins of the company in the spring of 2013, Lawson mandated a strategic review of the company. That review is now finished.

The review found that the company is great at engineering and building large structures.

“We produce a wonderful product,” he said.

Its main competitors for building large fuselages are the prime contractors – Airbus and Boeing. “Our costs are a lot lower than them” however, Lawson said.

As part of the review process, the company changed 80 percent of its leadership positions. That doesn’t mean that 80 percent of the leaders have changed, he said. But they’ve moved into the “right places.”

The company is also now a standards-based organization driven by metrics.

Its emphasis is on its brand and on costs.

“Our brand matters,” Lawson said. “We have resources. We’re not poor. We’re just stingy.”

Spirit will invest for the long haul to maintain its lead and grow the market, he said.

“We know what products we want to be on,” Lawson said.

One area that doesn’t hold much appeal is business jet work.

“That’s not our strength,” Lawson said.

At the same time, commercial aviation is booming.

In 2005 when the company formed, it was building about 20 Boeing 737 single-aisle fuselages a month, Lawson noted.

Rates have now grown to 42 a month and on are on their way to 47 per month. Boeing officials have said rates could go even higher.

“This is incredible,” Lawson said.

A phone call in July brought him the news that a train had derailed in Montana carrying 737 fuselages built at Spirit.

The fuselages are Boeing’s property once they leave Spirit’s door. But replacing those six scrapped fuselages while turning out 42 fuselages a month was tough.

“But we did it,” Lawson said. “Boeing will miss their deliveries by three days,” he said. “That’s what a reliable partner is.”

Besides Boeing’s big order backlog, Airbus has a huge backlog as well.

“It’s been a dogfight between Airbus and Boeing,” Lawson said.

The biggest part of Airbus’ backlog is the A320, including its A320 neo, an upgraded A320 with new engines. The upgraded plane flew last week.

Boeing’s answer to the A320 neo is the 737 MAX, which is in development.

Airbus is ahead in the race to market.

That creates a difficult competitive environment for Boeing and a tougher cost environment for Spirit, Lawson said.

“If you’re not competing on product, you’re competing on price,” he said.

Strong demand for airliners, however, should continue, Lawson said.

“There’s nothing to indicate there’s a near-term change,” he said. “It’s a much different world today.”

Travel is up 5 percent to 6 percent a year and demand for replacement planes is strong.

In addition, airplanes are more fuel efficient and interest rates are low.

Demand is strong both domestically and internationally.

“China will be a very large base for Boeing in terms of product sales,” Lawson said.

When thinking about the factory of the future, automation will be key to maintaining an advantage, he said. He also noted that even as China will be a huge customer, it also will be an important competitor as an aviation supplier.

This story was originally published September 29, 2014 at 3:19 PM with the headline "Spirit AeroSystems looking to bring work in-house as it considers outsourcing."