Spirit AeroSystems lost $616.7 million in Q1 as a result of stalled pricing negotiations with Airbus as well as its attempts to address manufacturing quality issues with Boeing, the company said in a May 7 securities filing.
The company ended Q1 with a cash flow balance of $352 million, a 57% year-over-year drop from $824 million. Spirit AeroSystems also burned through $444 million in the quarter, surging approximately 544% YoY from $69 million.
The cash drain has led the aerospace supplier to consider options to raise capital for its liquidity needs, according to the filing.
“All of these items will have a negative impact on cash flow throughout the year, but I want you to know that we are strongly focused on liquidity and actions to improve our current position,” SVP and CFO Mark Suchinski said in an May 7 earnings call.
Airbus and Spirit AeroSystems were unable to reach a pricing agreement for additional orders and increased production costs during the quarter, leading to a $447.8 million net loss for Spirit. The manufacturer produces fuselage sections for the company’s A350 unit and wings for the A220, according to the supplier’s website.
“As a result of this impact and the continued pressure on meeting the delivery targets demanded by the rapid rate in the Airbus A350 and 220 programs, we booked significant losses this quarter, including net incremental losses for anticipated performance obligations extending beyond 2026,” President and CEO Pat Shanahan told analysts in an earnings call last week.
Airbus and Spirit AeroSystems have been trying to reach a commercial agreement for the A350 and A220 programs since last year, and Spirit AeroSystems aimed to complete negotiations in early 2024, according to the company’s quarterly report filing. However, Boeing’s Alaska Airlines door plug blowout incident in January caused a domino effect on the supplier’s plans.
Shifting Airbus negotiations cause more losses
When Spirit AeroSystems confirmed it was in talks with Boeing about a possible acquisition in March, Airbus pricing adjustment discussions shifted. Airbus and Boeing are now in discussions over how to split their supplier’s operations based on each of their needs.
Additionally, Airbus CEO Guillaume Faury told analysts last month that Boeing’s issues have also indirectly affected Airbus’ supply chain. The France-based aircraft maker and the supplier met in New York to resume negotiations in early May, and Airbus is requesting financial compensation to take on Spirit AeroSystems, Reuters reported.
Spirit AeroSystems has factories in Kinston, North Carolina, Saint-Nazaire, France, and Belfast, Ireland, that service the A220 and A350 programs, according to the website.
“The strain on the supply chain being experienced by Spirit and other suppliers is both commercial and an operational risk,” Shanahan said. “We have risen to the challenge thus far, and we'll continue to work with Airbus to ensure that quality and safety remain the foremost considerations.”
Talks between Spirit AeroSystems and Airbus continue, with the majority of the discussions focused on a significant ramp-up supply for the A350 and A220, Shanahan said.
“We have never stopped talking about price with Airbus,” Shanahan said on the call. “We've explored other economics and different relationship[s] in our production system. And I won't go further there. But there's a path forward on all fronts, and we'll continue to partner with Airbus.”
Boeing’s inspection changes pause payments
On the Boeing side, the aircraft maker moved its inspection and rework to the supplier’s facility in Wichita, Kansas, in March. The company has only allowed fully inspected fuselages to be shipped to its plant in Renton, Washington.
As a result, Boeing’s inspection process changes effectively paused Spirit AeroSystems’ ability to receive payment for completed fuselages, Shanahan told analysts.
Spirit AeroSystems’ deliveries dropped approximately 11% YoY, decreasing from 346 to 307, according to the filing. Boeing 737 fuselage deliveries have also been delayed or not delivered due to the inspection changes, the company said in the securities filing. The fuselage units have been building up at the Wichita facility, resulting in higher levels of inventory amounting to approximately $1.8 billion.
Changes to Boeing’s 787 program drove $34.1 million in forward losses due to increasing supply chain and labor costs, according to the securities filing.
Boeing has also advanced Spirit AeroSystems $425 million to support factory operations, most of which will be repaid in Q3.
