Spirit is Willing - Execution is Weak

Aviation is a global industry, but when it comes to picking risk-sharing partners, all the airframe manufacturers tend to draw from the same pool of suppliers. And if you want to see the impact of program delays at Airbus, Boeing and elsewhere on those suppliers, just take a look at Spirit AeroSystems.

Yesterday (Oct 25), Wichita-based Spirit announced third-quarter charges totalling $590 million for expected forward losses on contracts to provide aerostructures for the Boeing 787, Gulfstream G280, the G650 and its Rolls-Royce BR725 engine, as well as the Airbus A350 and Boeing 747-8. Briefing analysts, CEO Jeff Turner said costs were not coming down quickly enough as the programs ramped up to full-rate production.

He blamed Spirit's failure to manage the complexity of its diversification drive, which was made worse when delays to the programs meant they all came one on top of the other, instead of being sequenced as originally planned. Almost all the cost issues are at Spirit's Tulsa, Oklahoma, plant, he said, where Spirit has taken a traditional built-to-print shop and turned it into a capable design-build operation.

When Spirit was formed in 2005, by the acquisition of Boeing's Wichita division by Canadian investment firm Onex, its first priority was to diversify - which it has done successfully, winning work with Airbus, Boeing, Bombardier, Gulfstream, Mitsubishi and Sikorsky. But program delays, particularly with the 787 and G650, put the spanner of unplanned concurrency in Spirit's careful planning.

The latest charges break down thusly: $184 million on the 787, mainly the wing work at Tulsa; $163 million on the G650 wing; $151 million on the BR725 engine nacelle; $88 million on the G280 wing; and $4 million on the A350 and 747-8. These are to cover losses expected going forward, over the duration and number of shipsets covered by the current contracts, because of higher than expected production costs.

By taking the charges now, Spirit hopes to cover the costs of ramping up to full-rate production across the programs, so that they become profitable going forward. It is not simple, as the 787 program illustrates. Turner says Spirit has had to delay introducing cost improvements on its 787 work to respond to the challenge of recovering schedule. "The 787 is the biggest risk to Spirit," he says.

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