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Published on : Wednesday, August 2, 2017
“In addition, Spirit recently made several announcements regarding the growth of our global fabrication business. We announced the creation of a new five-axis fabrication center of excellence and the expansion of our chemical processing capabilities on our Wichita, Kansas, campus. We also announced the creation of a new three- and four-axis fabrication center of excellence in McAlester, Oklahoma, and the expansion of our manufacturing facilities in Malaysia,” Gentile added. “All of these initiatives solidify Spirit as a world leader in the fabrication of detailed parts for the commercial and military aerospace industry.”
“Importantly, we are pleased to announce the exciting news that we have reached an agreement with our largest customer, Boeing, into 2022 on open commercial issues related to a range of programs, including the 737 MAX and the 787. We have signed an MOU reflecting our agreement and will now be working on formal amendments to the program agreements,” Gentile said. “Overall, by addressing a range of programs and not just 787 pricing, the MOU reduces much uncertainty that has long existed in the relationship with our largest customer and preserves our ability to meet our long-term cash flow goals,” Gentile said.
The MOU requires that the parties negotiate and execute Definitive Documentation, as defined in the MOU, in the third quarter of 2017. Spirit management believes the agreement will be completed and executed in the third quarter; however, there can be no assurance that Definitive Documentation will ultimately be executed and that Spirit’s dispute with Boeing will be resolved pursuant to the MOU.
“One of the biggest challenges in our discussions with Boeing has been 787 pricing. As part of this new MOU with Boeing, we are extending the block from 1003 units to 1300 units and establishing a planning block through line unit 1405. Although the 787 contract had agreed price step-downs for the 787-8, we had never agreed with Boeing on pricing for the 787-9 and -10. We have now agreed on modified step-down pricing for the 787-9 and -10 through line unit 1405. As a result of the MOU, we have recognized a reach-forward loss of $353 million on the 787 program,” Gentile remarked. “The agreement also includes a commitment from both organizations to work together on joint cost reduction efforts with financial incentives for both parties,” Gentile added.
“In addition to addressing open commercial issues, Spirit has also agreed with Boeing that we will jointly study advanced aerostructures and manufacturing processes,” Gentile said.
Spirit’s second quarter 2017 revenue was $1.8 billion, consistent with the same period of 2016, primarily driven by higher production deliveries on the Boeing 737 and Airbus A350 XWB programs, offset by lower production deliveries on the Boeing 777 program and decreased Global Customer Support & Services (GCS&S) activity.
Spirit’s backlog at the end of the second quarter of 2017 was approximately $46 billion, with work packages on all commercial platforms in the Boeing and Airbus backlog.
Operating income for the second quarter of 2017 was $(82.8) million, down compared to $83.3 million in the same period of 2016, reflecting the impact of the MOU with Boeing, partially offset by increased sales on higher-profit programs and the reversal of a litigation reserve, as well as the absence of the charges recognized during the second quarter of 2016 associated with the Airbus settlement. Second quarter reported EPS was $(0.48), or $1.57* per share adjusted to exclude the impact of the MOU with Boeing, compared to $0.35 EPS (or $1.21* adjusted) in the same period of 2016.
“Given the strong performance in the first half of 2017, we are raising our full-year adjusted earnings per share* guidance by $0.40 to a new range of $5.00 – $5.25 per share from the previous guidance range of $4.60 – $4.85,” Gentile said.