Spirit AeroSystems Shares Plunge 27% Due to Bleak Cash-Flow Outlook

Spirit AeroSystems, the aerospace manufacturer, witnessed a steep decline of 27% in its shares on Wednesday Aug. 2 after revealing losses of $105 million on Boeing and Airbus aircraft production. The company also projected a grim cash-flow situation for the rest of the year.

This unexpected outlook surprised analysts, who questioned how the company intended to control its rapidly increasing cash burn rate. Spirit attributed the financial difficulties to rising labor costs, ongoing disruptions in the supply chain, and escalating debt obligations. These challenges emerged as the company grapples with a surge in orders from aviation giants Boeing and Airbus.

Mark Suchinski, the Chief Financial Officer, acknowledged the urgency in the management’s approach, given the current circumstances. The shares closed at $22.86, marking the lowest level since November 2022.

Analysts raised concerns about the potential impact of financial troubles on Spirit’s contracts with Boeing and Airbus – its major customers. The company now predicts an annual free cash burn of $200 million to $250 million, compared to the earlier projection of $100 million to $150 million for the first quarter.

Spirit indicated that a two-week work stoppage by the International Association of Machinists and Aerospace Workers (IAM) in Wichita, Kansas, along with the subsequent labor agreement, further exacerbated financial pressures. This situation added $80 million in annual labor costs and contributed to losses on Boeing programs.

While CEO Tom Gentile acknowledged the increasing challenges in costs for suppliers, he didn’t explicitly confirm if Spirit had initiated renegotiations with Airbus and Boeing.

Despite projecting positive free cash flow in the 2024-2025 timeframe, Spirit’s CEO Gentile noted that the company would consider refinancing options to address debt maturing in April 2025.

“Spirit’s finances remain in a parlous state,” commented analyst Robert Stallard from Vertical Research Partners. “Being in virtual indentured servitude to Boeing is not a good place to be, and we struggle to see a pathway to consistent free cashflow generation.”

In the second quarter, Spirit reported a quarterly adjusted loss per share of $1.39, larger than the anticipated loss of 87 cents per share. Although revenue rose 8% to $1.37 billion, the cash burn increased to $211 million for the three months through June, compared to $79 million during the same period last year.

The Boeing 787 Dreamliner, Airbus A350, and Airbus A220 programs were affected due to labor, supply chain costs, and production recovery rate efforts.

As a result of the strike-related production pause, Spirit plans to deliver 370 to 390 narrowbody 737 fuselages to Boeing in 2023, down from the expected 390 to 420 fuselages.

Despite these challenges, Spirit highlighted that it has resolved incorrectly installed fittings on 737 aircraft at its factory. However, the company recorded a $23 million loss in revenue to account for a potential claim from Boeing for repair work, representing a cautious estimation of potential liability.

Sources: AirGuide Business airguide.info, msn.com, reuters.com, Spirit AeroSystems