Spirit AeroSystems Holdings Earnings Call Nuggets: Supplier Agreements and New Products

Spirit AeroSystems Holdings, Inc. (NYSE:SPR) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Supplier Agreements

Douglas Harned – Sanford C. Bernstein: I would like to understand if we went back to Q3 and at that time you took the charge for the four programs. The G280, G650, the BR725 Nacelle and the 787 wing. If you look at those four programs today how do you see the risk with them going forward, you did take an additional charge on a G280, but could you talk about where you stand with respect to your supplier agreements and which ones are perhaps more difficult than other ones, to stay, to ensure you can stay within the charge you took before.

Jeffrey L. Turner – President and CEO: I would look at it like this, not a lot has changed in the environment over the ensuing quarter so the risk profiles remain about the same. We did in order to keep that risk profile from escalating on the 280. We took the charge on some specific issues we had on with the 280 in the quarter. I would say that we continue to progress on the supply chain front as Phil said in his remarks the challenge is probably greater in the business jet part of the market and but I would say relatively the same as where we were about a quarter ago. We are seeing some improvement on the BR725 and then we saw some issues on the 280 and took those in the quarter.

Douglas Harned – Sanford C. Bernstein: Then just on the 787, I know Phil you mentioned that when you go to the Dash 9 and maybe some flattening in production. But could you talk about what the issues are ongoing to the Dash 9 Boeing has said that they at a final assembly level are able to go to 7 a month and stay at that they expect through the summer, but that some of their suppliers who are running Dash 9s down the same line as Dash 8s, that’s going to be a slower process. Could you talk about where Spirit stands with respect to that is, is this something that is slowing you down and if so what aspects of the program are causing that?

Jeffrey L. Turner – President and CEO: Well, I would just say categorically, Doug, every derivative or major change takes more hours, more energy to get that major change through. We are in the process of moving the Dash 9 through our lines and we actually have that in our plan we’ll be able meet the pull demands from the customers. So, I think it’s prudent and appropriate that extra time is planned into the production schedule anytime there is a major change and certainly the derivative accounts is a major change.

Philip Anderson – SVP and CFO: Doug, just to amplify it, normal course of business, when we introduce a new derivative it has longer flow times at the factory and so we are flowing it on the same line as current derivative, you end up losing a little bit of efficiency as you move the new derivatives with longer flow times through the factory.

New Products

Robert Spingarn – Credit Suisse: Jeff, since the third quarter, your Q3 report Airbus noted that Spirit is a risk on A350. Can you interpret that for us in a more specific basis and perhaps frame that risk and to what extent do unsettled LTAs with suppliers in Kinston limit your future cost visibility?

Jeffrey L. Turner – President and CEO: Well, couple of thoughts. One is – any time we build new products in through the production line my experience is there’s always travelled work, there’s always late breaking changes. Certainly the issues on the A350 are not unique. I think it’s fair to say there’s always frustration with whoever it is that you are waiting on to get something done. In our case with Airbus we’re working very closely with Airbus. We’ve got travelled work in their factory. They’ve got some folks working with us to help us understand their processes and frankly help us move some late breaking changes all of which are not driven by Spirit through our factory. So, all those things add to the complexity of the early production programs and we certainly have it on the A350. We have delivered six units now, two test units, four that are intended to be flying units. Airbus is very dynamic company continuing to drive hard on their schedule. That does give us some issues in the supply base and we’re working hard to stay on top of those. The ones that we have closed so far we’re closing inside our plants.

Robert Spingarn – Credit Suisse: But is there a similar situation there that we saw in Tulsa with Gulf Stream and some of the other development programs where the LTAs are not yet in place because a similar approach was taken in North Carolina and therefore we could see a repeat, maybe not of the magnitude, but could you talk about that.

Jeffrey L. Turner – President and CEO: I think there are similarities on every development program and certainly, we didn’t manage it as well in Tulsa at all as we need to. We are taking those lessons learned through the company putting a lot more emphasis a lot earlier on getting those things to work.

A Closer Look: Spirit AeroSystems Holdings Earnings Cheat Sheet>>