Commercial airline work boosts Spirit’s revenue and profits

Spirit AeroSystems, based in Wichita, recorded third quarter revenue of $1.7 billion, up 13 percent from $1.5 billion for the same time a year ago.

Net income for the quarter rose 79 percent to $168 million.

The results reflect the continued healthy demand for commercial aircraft and strong operating performance on Spirit’s core programs, the company said.

“It’s been a good quarter for the industry as aerospace has seen a number of significant milestones,” Spirit president and CEO Larry Lawson said in a statement. Boeing earlier announced plans to increase its 737 production rates to 52 a month beginning in 2018, following a rate increase to 47 a month in 2017. Boeing currently operates at a production rate of 42 planes a month for the 737.

At the same time, Airbus achieved type certification of its Airbus A350 airliner by European authorities and the Airbus A320 neo, an upgraded version of its A320, made its first flight in the quarter.

Those and other developments mean more work for Spirit, and the company is prepping to be ready.

Spirit is “maximizing our internal capabilities” more effectively, Lawson said.

The company continued to consolidate its global engineering resources to have better workforce stability, improve its expertise and lower costs, he said.

“We’re in the final stages of centralizing our procurement activities, which is already yielding improvement in performance and cost,” Lawson said.

Spirit’s backlog grew to a record $44 billion at the end of the third quarter, compared to $41 billion at the end of the second quarter.

The company’s revenue guidance for the year increased as well.

Spirit has made some significant moves to reduce costs, Lawson told analysts on a conference call that followed the company’s release of its quarterly earnings Friday morning.

Besides manpower, the company has looked at “everything from cellphones to drill bits ... to freight,” he said. “We’ve got a pretty comprehensive plan.”

Most of the payoff lies ahead, Lawson said, “but the work of what we have to do is laid in.”

Spirit also has turned to its supply chain for cost savings.

Its agreements with suppliers expire over a period of time, with the majority of them expiring by 2018, Lawson said.

Those contracts are open to renegotiation, he said.

Spirit expects a modest number of employees to accept the company’s offer of a voluntary retirement program, Sanjay Kapoor, the company’s chief financial officer, told analysts.

“Obviously, there’s a very sizable portion of the population that is eligible,” Kapoor said.

The deadline is approaching for those who want to take advantage of the retirement program, which targets managers and salaried workers 55 years of age and older with 10 years experience.

Spirit’s core operations continue to show cost leverage, Stern Agee analyst Peter Arment wrote in a note to investors. “And key development programs are also improving with modest gain in deferred production.”

Spirit’s third quarter results demonstrated how the company’s operations are set up to leverage the upcycle in the aerospace industry, Arment said. “While investors still need further clarification on the A350 risks and the status of the Tulsa sale, the current performance and likelihood of continued execution in the coming quarters should support a higher stock valuation.”

Spirit is now expecting 2014 revenue of $6.8 billion to $6.9 billion, up from $6.7 billion to $6.9 billion. Earnings-per-share forecasts also increased from a range of $2.90 to $3.05 a share to $3.35 to $3.45 a share.

The company ended the third quarter with a cash balance of $453 million and debt of $1.16 billion.

At the end of the third quarter, its $650 million credit facility remained undrawn.

This story was originally published October 31, 2014 at 10:07 AM with the headline "Commercial airline work boosts Spirit’s revenue and profits."