Spirit AeroSystems to integrate automation into 737 production line

Spirit AeroSystems intends to integrate automation into its production line, the manufacturer confirmed in its Q4 2023 earnings call, as it detailed the actions it is taking to address human factors, nonconformities, product safety and expanded inspections across 737 manufacturing. Spirit AeroSystems’ revenue for the quarter was $1.8bn, up 37% from Q4 2022, with earnings per share of $0.52 (up from -$2.32 compared to the year before). Favourable pricing adjustments to the 787 also saw a reversal of $361 million of total liabilities during the fourth quarter. However, uncertainty remains as to whether free cash flow will remain positive in 2024. “A significant portion of the 737 fuselage build is manually performed by our skilled teammates,” explained Pat Shanahan, president and CEO of Spirit AeroSystems, who reasserted that “repeatability, reliability and capability in manufacturing is required to produce high quality conforming products”. Alongside increasing the number of inspections and expanding effort to “integrate more with Boeing’s QMS” (Quality Management System), the company now intends to assess “the right balance of using human assisted technology and automated technology” in its medium- and long-term production plans. Despite briefly pausing the 737 production line in Q4 to “stabilise” in the wake of the Alaska Airlines incident, Spirit AeroSystems delivered 104 fuselages during the period: the highest quarterly total in four years. The Q4 net forward loss reversals and unfavourable cumulative catch-up adjustments (of $34 million and $55 million respectively) both primarily relate to the 737 programme, ‘reflecting higher costs required to recover and stabilize the production system’. Shanahan confirmed that the production line is cycling at 42 units a month but building at (FAA-capped) 38 a month, with “buffer days” the company’s “means of testing [its] ability to go up in rate”. Mark Suchinski, senior VP and CFO, added that Spirit AeroSystems built up inventory throughout 2023 (representing a $300 million increase) to support 42 fuselage builds a month, with “some work” to do towards “really optimizing the working capital as [Spirit] stabilize the factory”. As Spirit moves forward, “that will create a bit of tailwind to [its] free cash flow,” added Suchinski. However, as the MAX is the biggest driver of free cash flow, Suchinski admitted there was “still too much uncertainty here” to comment whether free cash flow would remain positive in 2024. This stood at a positive $42 million for Q4 2023, including the previously disclosed funding of approximately $100 million received from Boeing (regarding the MoA through 2025 on the 737 and 787 programmes). Indirect costs this year won’t be affected by rate as working capital “because we just need to optimize that to a much larger degree,” he said. Suchinski added that rate increases over the next few years will bring financial benefits “through the variety of actions that {Spirit is] working on, including focus on improving overall quality”. “The goal here is once you have a stable factory, the financials will come with it, and that’s what we’re focused on,” concluded Shanahan.