Spirit AeroSystems(US:SPR)2021-05-05 18:43Financial Data and Key Metrics Changes - Revenue for Q1 2021 was $901 million, down 16% from the same quarter last year, primarily due to lower production rates and reduced international air traffic caused by COVID-19 [32][33] - Earnings per share (EPS) was negative $1.65 compared to negative $1.57 in Q1 2020, with adjusted EPS at negative $1.22 compared to negative $0.79 in the same period last year [35] - Free cash flow usage for the quarter was $198 million, an improvement from $362 million in Q1 2020, primarily due to better working capital management [39][40] Business Line Data and Key Metrics Changes - Fuselage segment revenues were $437 million, down approximately $115 million compared to 2020, mainly due to lower production volumes on wide-body programs [43] - Propulsion revenue improved to $227 million, primarily due to higher revenue from the 737 MAX program and aftermarket revenues, with an operating margin of positive 7% compared to negative 2% in Q1 2020 [45] - Wing revenue decreased to $224 million, with an operating margin of negative 8%, primarily due to forward losses on the 787 and A350 programs [47] Market Data and Key Metrics Changes - Domestic air travel in the U.S. has shown recovery, with TSA checkpoint travel numbers consistently above 1 million since early March, indicating a positive trend for narrow-body aircraft [10][12] - International air traffic demand remains low compared to pre-pandemic levels and is expected to take longer to recover, impacting wide-body programs [13] Company Strategy and Development Direction - The company plans to produce about 160 737 MAX aircraft in 2021 to reduce inventory and support recovery in narrow-body demand [11][52] - Efforts are being made to diversify into defense programs, with expectations of 15% growth in defense business revenue for 2021 [26][54] - The integration of recently acquired sites is progressing, with projected synergies estimated at $42 million based on 2021 revenues [20] Management's Comments on Operating Environment and Future Outlook - Management expects the first half of 2021 to be challenging, with improvements anticipated in the latter half as narrow-body production rates increase [31][52] - The company is focused on deleveraging and aims to repay $1 billion in debt over the next three years as production rates recover [28][42] Other Important Information - The company recognized forward loss charges of $72 million in Q1 2021, primarily related to the 787 and A350 programs [38] - Cash and debt balances at the end of Q1 were approximately $1.4 billion and $3.6 billion, respectively [41] Q&A Session Summary Question: Clarification on 787 forward loss and fit-and-finish issues - Management clarified that the issues are related to their section of the aircraft, and there is no recourse for these specific issues [59][60] Question: A350 charge and production rate signals - Management indicated that about half of the forward loss on the A350 was related to schedule changes, with fewer aircraft requested despite the stated rate remaining the same [65][66] Question: Free cash flow breakeven point - Management stated that breakeven for the 737 program is in the high upper 20s to low 30s in terms of production per month, which would significantly help earnings and cash flow [76] Question: Production rates and inventory burn down - Management confirmed that they plan to produce 160 units this year while burning down existing inventory, which will provide a cushion for production [84][85] Question: Defense program revenue generation timeline - Management expects defense programs to start generating revenue within about two years as they move into low-rate initial production [110]