By Dow Jones Business News,
February 06, 2014, 02:55:00 PM EDT
Spirit AeroSystems Holdings Inc. on Thursday revealed a raft of potential new charges against its commercial jet
supply contracts that analysts said raised concerns about the ability of Boeing Co. to maintain momentum in reducing
costs on its flagship 787 program.
Spirit reported $546 million in pretax charges--including $385 million related to its work on the 787--that left it
nursing a fourth-quarter loss. The Wichita, Kan.-based company's new chief executive declined to rule out the
possibility of more charges after completing a strategic review of the company.
Spirit is the largest supplier for Boeing of structural components such as fuselages for its 737 and engine pylons and
part of the wing on the 787. While sales of commercial jet parts are booming, the company has become saddled with
unprofitable work on some jet projects. The $385 million charge against its work on the 787 caught analysts by surprise,
and investors wiped a fifth from its market value Thursday.
The company had previously recorded pretax charges of more than $1 billion against underperforming contracts over the
past two years, mostly related to business jets but including $184 million against the 787 announced in October 2012.
"This is blocking and tackling," the Spirit CEO, Larry Lawson, said on a post-earnings call, describing Spirit's
efforts to improve its performance.
Mr. Lawson, a former Lockheed Martin Corp. executive installed as CEO last year, said that its work in reducing costs
on the 787 was progressing better than on previous programs, such as the Boeing 777. This was offset by lower pricing on
some work carried out for Boeing.
Boeing is leaning on its suppliers to help drive down costs on the 787 program, with improved returns from the
Dreamliner program central to its efforts to boost cash flow and reward shareholders after the prolonged delay of the
The company has expressed satisfaction with its cost-reduction effort, though has yet to sign up a majority of
suppliers to its efficiency program.
"This would seemingly raise serious questions for [Boeing] and their anticipated cost profile as well," said Barclays
of the Spirit charge in a note to clients.
Mr. Lawson said talks were continuing on a new "master" agreement covering its work for Boeing.
Spirit also is a major supplier for Airbus Group NV, though didn't take any additional charges during the latest
quarter on the European plane maker's new A350 jet, which analysts had previously seen as the project most exposed to
Mr. Lawson said talks continued to sell a facility in Tulsa, Okla., though didn't rule out retaining the plant.
The company reported a loss of $586.9 million for the quarter to Dec. 31 compared with a year-earlier profit of $60.7
million. The per-share loss of $4.15 a share followed a profit of 43 cents a share a year earlier. The latest quarter
also included a negative impact of $381 million due to the establishment of a valuation allowance against U.S. net
deferred tax assets, which could be recouped by future profits. Revenue rose 4.8% to $1.49 billion.
Spirit, whose order backlog rose 7% to $41 billion at year end, forecast per-share earnings of $2.50 to $2.65 a share
in 2014 on revenue of $6.5 billion to $6.7 billion.
Its shares were recently down 22% at $25.71. Boeing's stock was 0.7% higher at $122.11, having fallen in each of the
past six sessions.
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