Spirit Aerosystems Holdings, Inc. (SPR)

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Spirit AeroSystems Holdings, Inc. (SPR)

Management Conference

August 06, 2013 11:00 am ET

Executives

Coleen Tabor

Larry A. Lawson - Chief Executive Officer, President, Director, Member of US Government Security Committee, Chief Executive Officer of Spirit Aerosystems Inc and President of Spirit Aerosystems Inc

Philip D. Anderson - Chief Financial Officer and Senior Vice President

Analysts

Howard A. Rubel - Jefferies LLC, Research Division

Julie Yates - Crédit Suisse AG, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

George Shapiro

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Michael Callahan - Topeka Capital Markets Inc., Research Division

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Presentation

Operator

Welcome to the Spirit AeroSystems Holdings, Inc. Management Conference Call. My name is Dawn, and I will be the operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Coleen Tabor. Coleen, you may begin.

Coleen Tabor

Thank you, and good morning. Welcome to Spirit's Management Conference Call. I'm Coleen Tabor, and in the room with me today are Spirit's President and Chief Executive Officer, Larry Lawson; Spirit's Senior Vice President and Chief Financial Officer, Phil Anderson; and Heidi Wood, Spirit's Senior Vice President of Strategy, M&A and Investor Relations. After comments by Larry regarding today's announcements and our strategy, we will take your questions. [Operator Instructions]

Before we begin, I need to remind you that any projections or goals we may include in our discussion today are likely to involve risks, which are detailed in our news release and in our SEC filings. And as a reminder, you can follow today's broadcast on our website at spiritaero.com.

With that, I'd like to turn the call over to our Chief Executive Officer, Larry Lawson.

Larry A. Lawson

Thank you, Coleen, and good morning, everyone. Welcome, everyone, to Spirit's management call. As you saw, we've announced a delay to our earnings release. We would have been much happier if it had taken place today. But obviously, some quarters are more complex than others and our auditors did not finish.

With that in mind, there's still a number of things that we can talk about, so we're holding this management call today, and we will get back with you at another time where we will have the second quarter financial discussion. We will try not to be redundant at the earnings call, but we thought it be respectful of you to host a management call and give you more insight into the decisions we're announcing today. We have a lot of ground to cover today, and we certainly want to leave time for Q&A.

But before I get started, I wanted to first highlight and thank all the employees of Spirit around the world for their effort. I joined Spirit 4 months ago, and I've been immersed and engaged in most aspects of the company. We have a talented group of employees. They are hard-working and dedicated. Spirit has unique capabilities, a great value proposition. And I can say, we have challenges and opportunities, and the underpinnings of the company are solid.

As you're aware, we are conducting a thorough strategic and financial review, which is ongoing, but you will see a number of announcements today. I'm going to talk about what we've accomplished, what we know thus far and provide a richer context to the announcements you see today.

So what have we done since last quarter. First, we've realigned ourselves to support our customers and our programs more efficiently and effectively. We made some internal leadership changes, brought in new talent and we are improving the rigor around decision-making and, of course, driving execution. We are challenging our cost structure from facilities overhead to material. And as part of that, you may have seen the headcount reduction announcement in July, which was the first reduction in force for Spirit since it became public. We are proud of our productivity, but we will continue to push on all fronts.

You also saw the charge in the range of $350 million to $400 million, primarily related to the Gulfstream programs. You also saw the announcement of our intent to divest the Oklahoma facilities. To be clear, these are separate issues. The decision to divest Oklahoma is a strategic decision about where Spirit is most differentiated in the aerostructures market and about current and future resource allocation. The charges are a result of our better understanding of labor and material cost, and they are mostly in front of us. We have now delivered significantly higher number of Gulfstream wings than we had 9 months ago, which gives us considerably more experience, information and hard data. These charges primarily address future cost estimates running from 2014 through 2021.

Let me provide a brief update on the strategic and financial review and talk about the Oklahoma divestiture and the context of our strategy going forward. First of all, Spirit is well positioned to grow in the commercial aerospace upcycle ahead. We have a healthy mix of maturing new programs and commercially successful, long-lived products like the 737, the 777, the Airbus 320, the 787 and the A350. We have a $38 billion backlog, which gives us visibility well into the rest of the decade. In addition, we have a good cost structure, great manufacturing, engineering capabilities and associated technologies. We believe that in a challenging cost-sensitive market, we offer compelling value proposition to our customers. But our focus is to advance those advantages further and deliver value to our shareholders. So let me offer my perspective coming from 33 years of experience in designing, producing and sustaining some of the most complex military systems. Spirit develops complex aerostructures and produces quality products that we build at high rate. When you look at the book end of our business, you see things like the 787 Section 41 manufacturing, which begins off a quarter-inch of carbon fiber tape, and we wind it into a complex monolithic, flight-ready aerostructure. And from my experience, this is impressive by any standard.

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