Spirit AeroSystems lowers 737 delivery prediction after strike hit

By Valerie Insinna and Abhijith Ganapavaram

(Reuters) -Spirit AeroSystems took $104.7 million in reach forward losses on Boeing (NYSE:) and Airbus programs during its second quarter and will deliver a lower number of 737 fuselages in 2023 due to a roughly two-week work stoppage at a key production site, the company said on Wednesday.

The strike by employees represented by the International Association of Machinists and Aerospace Workers (IAM) – which stopped operations from June 22 to July 5 at its production facility in Wichita, Kansas – has piled more costs on top of the embattled aerostructures maker, which is a critical supplier for both airplane makers.

Due to the pause in production, Spirit will deliver 370 to 390 narrowbody 737 fuselages to Boeing in 2023, down from the 390 to 420 fuselages expected last quarter.

The new labor agreement will add $80 million to annual costs, Spirit said. In the second quarter, the company absorbed $28.3 million in costs related to the new labor deal as well as $7.3 million in strike disruption charges.

“While the first vote resulted in a work stoppage, we quickly went back to the table with our union partners and reached a resolution. However, the strike did impact our production and deliveries, as reflected in earnings and cash flow,” Chief Executive Officer Tom Gentile said.

Shares of Spirit were down 4.5% before the bell.

Net forward loss charges for Spirit ballooned by about 64% compared to the same period last year.

Aside from the strike disruption charges, the company took a $37.5 million hit on the Boeing 787 Dreamliner program due to the new IAM contract and increased supply chain costs, a $27.5 million charge on the Airbus A350 due to production rate recovery efforts and a $27.4 million charge on the Airbus A220 program due to higher supply chain costs.

The company also reported $21.6 million in unfavorable catch up adjustments related to the 737, reflecting higher labor and supply chain costs.

Spirit reported a quarterly adjusted loss per share of $1.39, bigger than analyst expectations of an 87 cents per share loss, as per Refinitiv data.

While revenue rose 8% to $1.37 billion, cash burn was $211 million for the three months through June, the company said, compared to $79 million a year earlier.

“While these numbers from Spirit are pretty grim reading, we suspect that investors had been braced for something in this ball park,” said Vertical Research Partners analyst Rob Stallard.

Spirit on Wednesday said it had completed all work needed to fix incorrectly installed fittings that join the aft fuselage to the vertical tail on 737 aircraft at its factory, resolving a major problem discovered this spring.

However, it said it recorded a $23 million loss in revenue “to account for a potential claim from Boeing for repair work to date at their facility,” adding that this estimate represents “the low end of the range of potential liability.”

The company estimated that Boeing has completed approximately half of the required work.

Spirit in May said the work and the resulting disruptions could cost it $31 million in full-year profit, adding that additional costs were expected.