Spirit AeroSystems(SPR) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 2020 was $645 million, down 68% from the same quarter last year, primarily due to lower production rates on the 737 MAX and the impacts of COVID-19 [33][34] - Earnings per share (EPS) reported was negative $2.46 compared to positive $1.61 in the same quarter last year; adjusted EPS was negative $2.28 compared to positive EPS of $1.71 in the same period of 2019 [35] - Free cash flow for the quarter was a use of $249 million compared to a source of $192 million in the same period of 2019 [42] Business Line Data and Key Metrics Changes - Fuselage segment revenue was $327 million, down from the same period in 2019, with an operating margin of negative 77% compared to 12% in the prior year [45] - Propulsion segment revenue was $170 million, down compared to the same period of the prior year, with an operating margin of negative 10% compared to 19% in the same quarter of 2019 [46] - Wing segment revenue was $123 million, down compared to the same period last year, with an operating margin of negative 35% compared to 14% in the same quarter of 2019 [47] Market Data and Key Metrics Changes - Global passenger traffic fell by more than 90% in April and May compared to last year, with airlines losing more than $415 billion in revenue in 2020 [10][11] - The aviation industry is expected to take several years to recover, with domestic travel rebounding first, followed by international travel [10] Company Strategy and Development Direction - The company is focusing on cost reduction and preserving liquidity in response to lower production levels due to COVID-19 [11][43] - Significant cost-cutting measures have been implemented, including a reduction of more than $1 billion in costs or 40% of the non-material base of the business [15] - The company is also diversifying its operations, including partnerships with Virgin Hyperloop and Aerion for new transportation technologies [25][26] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the significant challenges posed by the MAX grounding and COVID-19 but remains confident in the long-term resilience of the aviation industry [11][51] - The company expects to return to cash flow positivity by 2022, contingent on production ramp-up and market recovery [56][100] Other Important Information - The company has made the decision not to renew the lease for the San Antonio facility and is assessing its global footprint and machine capacity [14] - The company is actively engaged in discussions with defense primes to leverage available capacity to support defense business growth [25] Q&A Session Summary Question: Can you elaborate on liquidity and cash breakeven? - Management indicated that cash burn will continue through next year, with expectations for cash flow positivity in 2022 [56][57] Question: What are the normalized margin targets at lower production rates? - The goal is to improve productivity and efficiency to achieve higher margins when production rates return to higher levels [65] Question: Insights on MAX production ramp? - The company plans to align employment levels to a production rate of about seven units per month, with a gradual ramp-up expected over the next 24 months [71] Question: Update on Bombardier transaction? - Both Bombardier and Asco deals have conditions that need to be met by specific long stop dates, with ongoing discussions to fulfill those conditions [89] Question: How do you view the 787 and A350 forward loss charges? - Forward loss charges are expected to be lower in Q3 due to updated production rate forecasts from Boeing and Airbus [111]