On Spirit earnings call, questions turn to new bomber work

Part of the conversation during Spirit AeroSystem’s first-quarter conference call Friday focused on its selection as a subcontractor to the Air Force’s new long-range strike bomber, the B-21.

The conference call followed the release of Spirit’s first quarter 2016 earnings report, in which it posted 3 percent lower revenue and 5 percent lower profit in the three-month period ended March 31.

Despite the slightly lower figures, financial analysts seemed OK with the performance, particularly Spirit’s earnings per share of $1.29, one cent lower than in the first quarter of 2015.

But analysts wanted to know more about Spirit’s B-21 selection and what it meant for the Wichita-based aircraft supplier’s broader pursuit of defense work.

Spirit chief executive Larry Lawson said Spirit’s selection on the B-21 program was a “landmark win that gives us a new growth engine in defense over the long term.”

But Lawson wouldn’t offer much detail on Spirit’s participation in the secretive program that is led by defense contractor Northrop Grumman.

“I think the thing that is encouraging to us, and I can’t get into too much detail, is it highly levers our design and manufacturing expertise,” said Lawson, who before joining Spirit as its top executive was president of Lockheed Martin Aeronautics Co.

He said the bomber program, which has not yet been fully funded, should help to raise Spirit’s profile further to more defense work opportunities.

The total cost of the B-21 contract is classified. The Government Accountability Office said there are two parts — an engineering phase with an estimated value of $21.4 billion in 2010 dollars, and options to build the first 21 bombers.

The Air Force hasn’t given a cost for producing the first 21 planes but has said that if 100 planes were built, the average cost per plane would be $511 million in 2010 dollars.

Currently, Spirit manufactures the composite fuselage of Sikorsky’s CH-53K helicopter for the Marines; the fuselage of Bell Helicopter’s V-280 tiltrotor prototype for the Army’s Future Vertical Lift Program; parts of the Air Force’s new KC-46 air refueling tanker, and the Navy’s P-8A Poseidon maritime patrol jet.

Both of the latter aircraft are based off of commercial aircraft manufactured by Boeing, which accounts for about 84 percent of Spirit’s revenue. Defense work accounts for less than 5 percent of its business.

“I don’t really ever see it being more than 20 percent of the company,” Lawson said of defense work for Spirit. But 20 percent is substantially more than what it has now.

To that end, Lawson said the company would be selective about what additional defense projects it would pursue. It could also bolster its defense business through an acquisition, he added, but in that scenario Spirit would be “looking for somebody who adds value … has the right programs.”

Lawson also was asked about the effect of Boeing taking away sales of aircraft parts to airlines and bringing that work in-house. Spirit will continue to build those parts, however.

“I think Boeing is very optimistic about the aftermarket (parts business),” he said. “… In any consequence this isn’t a big part of our business.”

Spirit’s net income was $172 million on revenue of $1.68 billion in the first quarter of 2016, compared with net income of $182 million on revenue of $1.74 billion in the same period a year ago.

On the analysts call, chief financial officer Sanjay Kapoor said revenue decreased because of a price step-down on the 787 Dreamliner as well as deliveries of one fewer 747 and four fewer 737 shipsets. A shipset comprises all the parts Spirit makes for one airplane.

He said the effects of 787 pricing and lower shipset deliveries on revenue were partly offset by the company’s performance on the Airbus A320 and A350 programs.

Overall, Spirit delivered five more commercial airplane shipsets, for a total of 397, than in the first quarter of 2015, according to its quarterly report.

Its backlog stood at $46 billion, down from about $47 billion at the end of 2015.

This story was originally published April 29, 2016 at 9:34 AM with the headline "On Spirit earnings call, questions turn to new bomber work."