At Spirit AeroSystems, The Fix Is In
Spirit AeroSystems is best known for supplying large fuselage subassemblies for several of commercial aviation’s biggest programs. That will not change anytime soon. But if the company has its way, its aftermarket footprint will expand significantly over the next few years and extend well beyond the programs it supports on the original equipment side.
The shift began two years ago, and thanks primarily to several acquisitions, the Wichita-based company’s big-picture goal of boosting aftermarket revenues to 20% of its annual total—a target of $500 million—by middecade is well underway. Its 2021 aftermarket revenues of $240 million were 6% of its total haul of $3.9 billion. As recently as 2019, the aftermarket represented just 2% of total revenue.
The shift is due primarily to capabilities acquired through several deals.
“We had our Wichita operations, and we could repair flight control surfaces like slats and flaps and elevators and rudders as well as nacelles and inlets and thrust reversers, but for Boeing products primarily,” President and CEO Tom Gentile said during the company’s annual investor day on March 2. A deal with Bombardier closed in November 2020 and brought the Short Brothers aerostructures and aftermarket business in Belfast, Northern Ireland, as well as facilities in Casablanca, Morocco and Dallas. The purchase netted Spirit “those same capabilities on flight control surfaces, nacelles, inlets and thrust reversers, but on Airbus products in Europe,” Gentile said. “And so we were able to start cross-pollinating those capabilities immediately.”
A year ago, Spirit and Taiwan-based Evergreen Aviation Technologies Corp. (EGAT) teamed up in a joint venture, giving the U.S. company a presence in Asia for the same type of work.
Then, in June 2021, Spirit snapped up Texas-based composite repair specialist Applied Aerodynamics. That deal expanded Spirit’s repair portfolio to a variety of key components such as radomes, winglets and main landing gear on new platforms, including the Boeing 737, 747, 757, 767 and 787 families, the Airbus A320 and A321 and several regional aircraft. It also added Boeing C-17 flight control work.
“This diversification effort is starting to pay off, and we’re starting to see some results,” Gentile said. “Where we go from here is we keep adding repairs and capabilities, and we keep adding geographies.”
Spirit generates most of its aftermarket revenue through spare parts sales, primarily to OEMs. The company does not release the precise breakout of its aftermarket business, but a presentation shared at the 2022 investor event suggested that spares sales made up close to 90% of the segment’s revenue in 2020. Last year, thanks to the acquisitions, the split was closer to 70% parts and 30% repairs. The company’s plans call for evening that out further by developing additional capabilities.
“We build product that is the right quality the first time. However, others break it, and so we really do have to fix it,” said Kailash Krishnaswamy, senior vice president of aftermarket services, during a lighthearted introduction to his business unit at the investor event. “There is enormous value that we deliver to our customers because the alternative would be to replace the entire unit.”
The recent acquisitions and EGAT agreement changed Spirit’s repair portfolio in two significant ways. It expanded the company’s reach beyond its traditional Boeing-focused market. In 2019, work for Boeing—primarily supplying the 737 and 787 programs with major airframe sections, but also some aftermarket activity—generated 79% of the company’s revenue. Even more crucially, many of the new aftermarket services extend beyond Spirit’s original equipment portfolio. The company does not make radomes or landing gear, for example.
Going forward, Spirit plans to keep filling in gaps in its repair capabilities list. Thanks to the Bombardier deal, it can service thrust reverser actuation systems on A320ceos, for example. It is eyeing the same capability on both 737 Next Generation and MAX variants. Similarly, it is developing thrust reverser actuation capability for Rolls-Royce-powered A330s to complement work it does on GE-powered A330s.
“Actuation systems, exhaust nozzles—we do that on very specific platforms. Landing gear, we do that on very specific platforms,” Krishnaswamy said. “One could ask, ‘Are you thinking about [auxiliary power units]? Are you thinking about hydraulics?’ Those are all opportunities that exist out there that we can go pursue either organically or inorganically and, essentially, populate [our capabilities] chart. That’s the way we’re thinking about growth in aftermarket.”
Spirit’s repair aspirations go beyond getting bigger—it plans to get better, too. As a company with manufacturing roots, producing quality products with as little rework as possible is baked into its DNA. The aftermarket world adds a new wrinkle. “The customers are really focused on turnaround times,” Krishnaswamy said.
As it adds aftermarket-focused locations such as the Casablanca and Dallas shops it acquired from Bombardier, sharing capabilities between shops is important to give customers options and peace of mind that they have in-region support. But transferring aftermarket-centric principles between these sites is key as well.
“Getting that culture into the larger Spirit aftermarket business—where you have a diverse group of people, diverse regions, all thinking entrepreneurially about delivering value to the customer quickly and with the right quality—is critical for us to gain share in this market,” Krishnaswamy said. “As we expand, when we look at [the] Middle East or when we look at China or Central America, our focus will be to work with partners that are more aftermarket-focused as opposed to being production-focused.”
Organic growth and partnerships similar to the EGAT deal are core to Spirit’s aftermarket aspirations. But there likely will be more acquisitions as well.
“Once assets come to the market that are aligned with our growth plans, we will be taking a look at them,” Krishnaswamy said.
Spirit generates about 95% of its aftermarket revenue from commercial customers. But the military side offers yet another market for expansion—a fact that is not lost on company executives.
“We are only minimally touching the sustainment business, which is just about as large as the commercial aftermarket,” Krishnaswamy said. “That’s something that we will actively start looking into, and we’ll figure out the appropriate entry point to get into the military [market].
“We feel pretty confident that we can get to [$500 million in annual revenue] in the next three years,” he added. “That’s going to be about a 20% [compound annual growth rate] from now. It’s going to be a mix of spares and repairs, but we are making the right kind of investments in the right resources to be able to achieve our target.”