By Doug Cameron and Ben Fox Rubin
Spirit AeroSystems Holdings Inc. on Thursday revealed a raft of
potential new charges against its commercial jet supply contracts
that analysts said raised concerns about the ability of Boeing Co.
to maintain momentum in reducing costs on its flagship 787
program.
Spirit reported $546 million in pretax charges--including $385
million related to its work on the 787--that left it nursing a
fourth-quarter loss. The Wichita, Kan.-based company's new chief
executive declined to rule out the possibility of more charges
after completing a strategic review of the company.
Spirit is the largest supplier for Boeing of structural
components such as fuselages for its 737 and engine pylons and part
of the wing on the 787. While sales of commercial jet parts are
booming, the company has become saddled with unprofitable work on
some jet projects. The $385 million charge against its work on the
787 caught analysts by surprise, and investors wiped a fifth from
its market value Thursday.
The company had previously recorded pretax charges of more than
$1 billion against underperforming contracts over the past two
years, mostly related to business jets but including $184 million
against the 787 announced in October 2012.
"This is blocking and tackling," the Spirit CEO, Larry Lawson,
said on a post-earnings call, describing Spirit's efforts to
improve its performance.
Mr. Lawson, a former Lockheed Martin Corp. executive installed
as CEO last year, said that its work in reducing costs on the 787
was progressing better than on previous programs, such as the
Boeing 777. This was offset by lower pricing on some work carried
out for Boeing.
Boeing is leaning on its suppliers to help drive down costs on
the 787 program, with improved returns from the Dreamliner program
central to its efforts to boost cash flow and reward shareholders
after the prolonged delay of the twin-aisle jet.
The company has expressed satisfaction with its cost-reduction
effort, though has yet to sign up a majority of suppliers to its
efficiency program.
"This would seemingly raise serious questions for [Boeing] and
their anticipated cost profile as well," said Barclays of the
Spirit charge in a note to clients.
Mr. Lawson said talks were continuing on a new "master"
agreement covering its work for Boeing.
Spirit also is a major supplier for Airbus Group NV, though
didn't take any additional charges during the latest quarter on the
European plane maker's new A350 jet, which analysts had previously
seen as the project most exposed to additional risk.
Mr. Lawson said talks continued to sell a facility in Tulsa,
Okla., though didn't rule out retaining the plant.
The company reported a loss of $586.9 million for the quarter to
Dec. 31 compared with a year-earlier profit of $60.7 million. The
per-share loss of $4.15 a share followed a profit of 43 cents a
share a year earlier. The latest quarter also included a negative
impact of $381 million due to the establishment of a valuation
allowance against U.S. net deferred tax assets, which could be
recouped by future profits. Revenue rose 4.8% to $1.49 billion.
Spirit, whose order backlog rose 7% to $41 billion at year end,
forecast per-share earnings of $2.50 to $2.65 a share in 2014 on
revenue of $6.5 billion to $6.7 billion.
Its shares were recently down 22% at $25.71. Boeing's stock was
0.7% higher at $122.11, having fallen in each of the past six
sessions.
Write to Doug Cameron at doug.cameron@wsj.com and Ben Fox Rubin
at ben.rubin@wsj.com
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