Spirit AeroSystems reports first quarter loss of $163 million
Spirit AeroSystems, Wichita’s largest employer, on Wednesday reported a first quarter loss of $163 million.
The company also reported that revenue was down 45% compared to the first quarter of 2019.
The company reported a net loss of $163 million during the first three-month period in 2020, compared to net income of $163 million during the same period last year.
The quarter started with layoffs of about 2,800 workers after the grounding of the Boeing 737 Max following two fatal crashes. Spirit makes about 70% of the Max 737, including the fuselage.
Then the pandemic hit.
“The aerospace industry and Spirit are facing unprecedented disruption and uncertainty from the continued 737 MAX grounding and COVID-19 pandemic. We have taken appropriate steps to improve the safety of our team in our manufacturing facilities,” SpiritAeroSystems president and CEO Tom Gentile said in a news release. “We have also executed a number of cost reduction activities to align our cost structure to the lowered rates of production.”
The cost savings included a January reduction of 3,200 employees (2,800 in Wichita and 400 in Oklahoma), eliminating 200 contractor positions, a volunteer retirement program for 850 workers, 20% reduction in pay for U.S.-based executives, 21-day furlough for employees supporting Boeing programs, four-day workweeks for salaried employees in Wichita and then another 1,450 employees being laid off in an announcement last week.
“And there will be other employee reductions across other programs in the other sites in the coming weeks,” Gentile said during a one-hour teleconference following the release of the financial reports.
Last week’s announcement mentioned first-quarter reports by Boeing and Airbus that indicated there would be a decline in demand for new airplanes. Spirit is a supplier of parts for both companies.
In the second quarter, Spirit expects to “recognize incremental forward losses” of $70 to $90 million on the Boeing 737 program and $15 to $20 million on the Airbus A350 program, according to the financial report.
Spirit previously had an agreement with Boeing to deliver 216 737 Max shipsets in 2020, Gentile said. That number has been reduced to 125 shipsets, with 18 delivered so far.
Boeing also has helped Spirit with a surge of cash to be able to pay its bills.
During the quarter, Spirit received a $225 million cash advance from Boeing. Boeing also deferred until 2022 repayment of a $123 million advance.
Additionally, Spirit raised $1.2 billion by issuing notes and used $800 million of the money to pay down other debts.
The company projects negative cash flow in its operations through 2020 but will be able to maintain more than $1 billion in cash despite plans to move forward with acquisitions of Bombardier and Asco Industries. The acquisitions will cost roughly $900 million as well as assuming hundreds of millions more in debts, Senior Vice President and Chief Financial Officer Mark Suchinski said.
Gentile said the Asco acquisition improves the company’s position in the defense market and its work with Airbus, noting that nearly half of the company’s revenue comes from Airbus.
During the production rate slashes, Spirit has worked on product flow, accelerated automation and digitalization projects and worked to complete the “transition for a global digital logistics center.”
“These projects will enable us to ramp up to higher rates of production in the future with increased productivity and improved quality,” Gentile said. “We remain confident in the recovery of commercial air travel and are working hard to maintain Spirit’s position as a leading aerospace ... supplier to both Boeing and Airbus as well as our defense customers.”
Gentile said defense revenue will grow more than 20% this year and account for about 15% of revenue in 2020.
“But ultimately, we want defense, even when we return to full rates on the commercial side to be 40% of Spirit’s business,” Gentile said.
This story was originally published May 6, 2020 at 9:33 AM.