Spirit AeroSystems Holdings Inc. expects to produce Boeing Co. 737 Max aircraft bodies at a lowered rate for the rest of the year, pressuring its finances as the two companies work to improve quality in their factories.
Boeing’s largest supplier only expects to ship around 350 fuselages for the cash-cow jetliner this year as the two manufacturers step up inspections under scrutiny from U.S. regulators and lawmakers. Spirit has slowed its own production by about a quarter to a 31-unit monthly pace, it said as it reported first-quarter earnings on Tuesday.
The disruptions will have a “material impact” on Spirit’s cash flow throughout 2024, the supplier said in a statement. The Wichita, Kansas-based manufacturer also said it has been unable to reach a deal with Airbus SE to raise prices on parts it supplies for the A220 and advanced A350 aircraft models, which resulted in a further drag on cash flow.
Spirit posted a first-quarter adjusted loss of $3.93 per share compared to a 54 cent deficit estimated by analysts. Free cash flow was negative $444 million in the quarter, far more than than the $69 million use of cash in the prior-year period. The results underscore how Boeing’s crisis is pressuring the finances of the critical supplier and former unit the planemaker spun off in 2005.
“The death throes of Spirit are hard to watch, as these 1Q numbers are pretty horrendous,” analyst Rob Stallard of Vertical Research Partners said in a note to clients on May 7.
Spirit shares fell 2.4% as of 12:58 p.m. in New York, while Boeing declined about 1.2%.
Boeing in March confirmed it was in discussions to acquire Spirit in an effort to bring more of its aircraft production under its direct control. The planemaker is working to stabilize its supply chain and bolster quality standards after a fuselage panel blew off a 737 Max 9 mid-flight in January.
Dave Calhoun, Boeing’s Chief Executive Officer, has said a deal for Spirit could be reached by the end of the current quarter. However, efforts to sell Spirit’s Airbus-related businesses to the European planemaker have been caught up in protracted negotiations, Bloomberg News reported on April 30.
“Ultimately, we don’t expect Spirit to be a public company for that much longer,” Stallard said. “These results could play a part in this process, as they highlight just how desperate Spirit’s financial position has become.”
Boeing agreed to inject $425 million into Spirit to help keep its close trade partner afloat in April. As of March 1, Boeing stopped accepting fuselages that need parts or repairs from its supplier. Once Spirit begins to ship higher numbers of “clean” airframes to Boeing, the planemaker has said it expects to see significant improvement in the flow of the narrowbody jets through its factory.
Spirit is working with Boeing to step up inspections and make changes on its factory floor as flaws are discovered, CEO Pat Shanahan said during its earnings call. The supplier is seeing quality improvements on an almost weekly basis, and Shanahan said he expects the effort will yield a “step change” in improvements during the second half of the year.
“We’re doing the right things from a business standpoint and it will pay off in the future,” said Mark Suchinski, Spirit’s chief financial officer.
Spirit also said it expects incremental losses due to a slower-than-expected increase in production of Boeing’s 787 Dreamliner widebody jet. That model is under fresh scrutiny from the U.S. Federal Aviation Administration after the planemaker disclosed that workers at its factory in North Charleston, South Carolina, may have falsified records related to tests performed as part of work attaching wings to the aircraft’s body.
Spirit ended the first quarter with $352 million in cash, according to its release. The supplier said its management has developed plans to improve liquidity, without elaborating.
The company also said it will not provide financial guidance for 2024 until it had clarity on the acquisition by Boeing and its negotiations with Airbus.
