Spirit Aero closes in on aircraft pricing agreement with Boeing
Spirit AeroSystems is much closer to reaching an agreement on how much it will be paid to make major parts of Boeing’s airliners.
The Wichita-based aircraft supplier on Wednesday announced a memorandum of understanding with Boeing as part of its second-quarter 2017 earnings announcement.
The memorandum, Spirit CEO Tom Gentile said on a conference call with analysts, “reduces much uncertainty” for the city’s largest employer going forward.
“By having these issues behind us we can start having a healthier relationship (with Boeing),” Gentile said on the call.
Boeing, too, stands to benefit from the memorandum, it said in an e-mailed statement.
“This is another important step forward for Boeing’s Partnering for Success program, our collaborative effort with suppliers to reduce costs, improve efficiency and position our products and services to compete in today’s aerospace market,” the statement said.
“This agreement, when finalized, also will provide additional stability to our commercial programs and is part of our ongoing strategy to retire risk from our business.”
Gentile and chief financial officer Sanjay Kapoor provided few details on the memorandum, which still must be finalized with Boeing as “definitive documentation,” expected in the third quarter of 2017. Boeing and Spirit have been working under a temporary agreement since November 2014.
What they would say is that the memorandum extends into 2022 and covers pricing on the 787-9 and 787-10, the 737 and the 737 Max, and “legacy twin-aisle programs,” which would include the 747, 767 and 777. It does not cover the 777X, production of which hasn’t started.
The memorandum’s pricing on the 787-9 and -10 is lower than Spirit had accounted for in the future, which prompted the company to announce it would see a forward loss of $353 million on the 787 program.
“The 787 settlement … is an acceptable outcome for us,” Kapoor said on the call. “(It) allows us to generate consistent and increasing cash flow.”
And, he said, if Boeing increases the production rate of the 787 from 12 to 14, “there could be a modest benefit” to Spirit.
Also in the second quarter, the company:
▪ Recorded $1.8 billion in revenue, which was flat to last year’s second quarter, and posted a net income loss of $57 million related to the memorandum with Boeing. For the first half of 2017, the company posted a profit of $85 million on revenue of $3.5 billion.
▪ Won new work with Airbus for next generation spoilers on the A320 jetliner. “It’s relatively small but positions us for more work (with Airbus) in the future,” Gentile said.
▪ Delivered a record 424 shipsets, up from 408 in the second quarter of 2016, reflecting higher production rates on the Boeing 737, and Airbus A320 and A350. A shipset is all the parts Spirit makes for one airplane.