Q4 2023 Spirit AeroSystems Holdings Inc Earnings Call

Good morning, ladies and gentlemen.

Prika: Good morning, ladies and gentlemen. And welcome to the Spirit AeroSystems Holdings Inc. fourth quarter and full year 2023 earnings conference call. My name is Prika, and I will be your coordinator today. If you would like to ask a question during the question and answer session, you may submit a question. To do so, please press the star followed by the number one on your telephone keypad.

And welcome to the Spirit Aerosystems Holdings, Inc, fourth quarter and full year 2023 earnings conference call.

breaker: My name is breaker and I will be your coordinator today.

breaker: If he would like to ask a question during the question and answer session. You may submit a question and to do so please press star followed by the number one on your telephone keypad.

Operator: We do ask that you please limit yourself to one question today. And I now would like to hand the presentation over to Ryan Avey, Senior Director of Investor Relations and FP&A. Please. Please go ahead.

breaker: We do ask that you please limit yourself to one question today.

breaker: And I now would like to hand, the presentation over to Ryan Avey Senior director of Investor Relations and S. P N a.

Ryan Avey: Please go ahead.

Ryan Avey: Thank you, and good morning, everyone. I'm Ryan Avey, and with me today are Spirits President and Chief Executive Officer Pat Shanahan and Senior Vice President and Chief Financial Officer Mark Sachin. Before we begin, I need to remind you that any projections or goals we may include in our discussion today are likely to involve risk, including those detailed in our earnings release, in our SEC filings, and in the forward-looking statement at the end of this web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of non-GAAP measures we use when discussing our results. With that said, I would like to turn the call over to Pat.

Ryan Avey: Thank you and good morning, everyone I'm Ryan Avey with me today are Spirit's, President and Chief Executive Officer, Patrick Dan <unk>, Senior Vice President and Chief Financial Officer, Mark such Inchcape.

Speaker Change: Before we begin I need to remind you that any projections or goals. We may include in our discussion today are likely to involve risks.

Speaker Change: Including those detailed in our earnings release, and our SEC filings and in the forward looking statement at the end of this web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of non-GAAP measures, we use when discussing our results with that I would now.

Speaker Change: Like to turn the call over to Pat.

Pat: Thank you, Brian and good morning, everyone.

Pat Shanahan: Thank you, Ryan, and good morning, everyone. Today I will update you on how we are running the business at Spirit. Most of my remarks will focus on the steps we took after the January 5th accident. Mark will address the financials in his comments. My mandate when I came here was to put our operations and finances back on solid footing. In my estimation, we achieved significant progress toward that goal in the fourth quarter. However, the accident on January 5th demanded a different focus by our team. Consistent with our protocols, our response team was activated within hours.

Pat: Today I will update you on how we're running the business at spirit most.

Pat: Most of my remarks will focus on the steps we took after the January 5th accident.

Pat: Mark will address the financials in his comments.

Pat: My mandate when I came here was to put our operations and financials back.

Pat: Back on solid footing.

Pat: In my estimation, we achieved significant progress toward that goal in the fourth quarter.

Pat: However, the accident on January five.

Pat: Demanded a different focus by our team.

Pat: Consistent with our protocols. Our response team was activated within hours.

Pat Shanahan: From that moment, Spirit's focus has been on supporting Boeing, its airline customers, the NTSB, the FAA, and our people. The immediate response was taking a hard look at our processes and incorporating any findings into action. Within days, we enacted countermeasures to include adding in-line and ship-in-place inspections with Boeing that replicated those performed by the airlines to return to service, leveraging the FAA's safety management system to conduct a product safety risk assessment; incorporation of Detailed Review and Observation, with Boeing, of the mid-entry door plug assembly and installation process to include both Spirit and Boeing operations.

Pat: Since that moment Spirit's focus was on supporting Boeing it's.

Pat: Its airline customers the NTSB the FAA.

Pat: And our people.

Pat: The immediate response was taking a hard look at our processes incorporating any findings into action.

Pat: Within days, we enacted countermeasures to include <unk>.

Pat: Adding in line and ship in place inspections.

Pat: With Boeing that replicated those performed by the airlines to return to service.

Pat: Leveraging the FAA safety management system to conduct a product safety risk assessment.

Pat: Incorporation of detailed review an observation with Boeing of the mid to entry door plug Assembly and installation process to include both spirit and Boeing operations.

Pat: Concurrent with those immediate actions, we have initiated a second wave of actions.

Pat Shanahan: Concurrent with those immediate actions, we have initiated a second wave of actions, centered on addressing human factors, nonconformities, product safety, and expanded inspections across 737 manufacturing. People are at the heart of the company and our manufacturing process. A significant portion of the 737 fuselage build is manually performed by our skilled teammates. Repeatability, reliability, and capability in manufacturing are required to produce high-quality conforming products.

Pat: Entered on addressing human factors nonconformity product.

Pat: Product safety and expanded inspections across 737 manufacturing.

Pat: People are at the heart of the company and our manufacturing processes.

Pat: Significant portion of the 737 fuselage build is manually performed by our skilled teammates.

Pat: Repeat ability reliability.

Pat: Capability and manufacturing is required to produce high quality conforming products.

Pat Shanahan: The human condition and human factors must be accounted for in any improvement effort. And through that lens, we are focusing additional action. The four main levers to mitigate human factors that we are pulling are Proficiency of our Mechanics in the Spectrum.

Pat: The human condition and human factors must be accounted for and any improvement efforts.

Pat: And through that lens, we are focusing additional actions.

The four main levers to mitigate human factors that we're pulling.

Pat: Include proficiency of our mechanics in the sectors.

Pat Shanahan: Compliance to our Quality Management System and State Proofing and Observation. We will do more testing and training; we will drive greater discipline into the QMS. We will enable our teammates with better tools, techniques, and technology that is available today. The goal of any world-class manufacturing company is perfection, or zero defects.

Compliance to our quality management system.

Pat: Staked proofing and observation.

Pat: We will do more testing and training.

Pat: We will drive greater discipline to the Qos.

Pat: We will enable our teammates with better tools techniques and technology that is available today.

Pat: The goal of any world class manufacturing company is perfection or zero defects.

Pat Shanahan: We Aspire to Achieve Perfection. Detecting, correcting, and ultimately preventing defects, otherwise known as non-conformities, is the basis for continuous improvement. We are expanding our efforts to integrate more with Boeing's QMS, realigning organizationally to accelerate redesign and process reengineering, and utilizing more advanced data analytics. We are also increasing the number of Spirit-performed inspections and Boeing-performed inspections.

Pat: We aspire to achieve perfection.

Pat: Detecting correcting and ultimately preventing defects.

Pat: Otherwise known as nonconformity as is the basis for continuous improvement.

Pat: We are expanding our efforts to integrate more with Boeing's qos.

Pat: Realigning organizationally to accelerate redesign and process reengineering.

Pat: And utilizing more advanced data analytics.

Pat: We are also increasing the number of spirit performed inspections and Boeing performed inspections.

Pat Shanahan: And soon, we will integrate these efforts with those of the FAA and customers who have joined us here in Wichita. That is a brief summary of some of the systemic improvements in our second wave of collective action. There are additional actions we are taking as well. The point is, we are mobilized for implementation with detailed plans fully aligned with Boeing. Our next wave of improvement will be the deployment of automation and automation for sections of the airplane that remain highly manual. That is the fundamental solution to zero defects and zero escape. For the 737 fuselage, front and back sections have the most complex physical geometries and are the most confined workspace. The build is largely manual.

Pat: And soon we will integrate these efforts with those of the FAA and customers who have joined us here in Wichita.

Pat: That is a brief summary of some of the systemic improvements in our second wave of collective actions.

Pat: There are additional actions, we are taking as well.

Pat: The point is we are mobilized for implementation with detailed plans and fully aligned with Boeing.

Pat: Our next wave of improvement will be the deployment of automation and automation for sections of the airplane that remained highly manual that is the fundamental solution to zero defects and zero escapes.

Pat: On the 737 fuselage.

Pat: And back sections have the most complex physical geometries and are the most confined workspaces.

Pat: The build is largely manual.

Pat: Our eye is toward finding the right balance of using human assisted technology and.

Pat Shanahan: Our eye is toward finding the right balance of using human-assisted technology and Automated Technology. There is a path to deployment. Broadly speaking, full-scale robotics is in practice. In our research labs, we have significant human-assisted technology that is at manufacturing readiness level six that we look to accelerate. I have recently reviewed this technology with the team and will ensure it receives the appropriate resources and investment. I am very proud of how our team has responded to this action. They have been calm, focused, and moving with urgency. I have a lot of confidence in this team.

Pat: An automated technology.

There is a path to deployment.

Pat: Broadly speaking full scale robotics is impractical.

Pat: In our research labs, we have significant human assisted technology that.

Pat: That is manufacturing readiness level six that we look to accelerate.

Pat: I have recently reviewed this technology with the team.

Pat: And we will ensure it receives the appropriate resources and investments.

Pat: I am very proud of how our team has responded to this accident.

Pat: <unk> been calm focused and moving with urgency.

Pat: I have a lot of confidence in this team.

Pat: At this point the art form is to integrate broad actions with our ongoing operations and not as a one off project.

Pat Shanahan: At this point, the Art Forum is to integrate broad actions with our ongoing operations and not as a one-off project. Our teams across manufacturing and engineering are fully aligned and will implement changes seamlessly. I believe we will move quickly because of our shift in governance away from being top-down. The mindset shift is to understand that the airplane is the boss. The airplane tells us what to do.

Pat: Our teams across manufacturing and engineering are fully aligned and we will implement changes seamlessly.

Pat: I believe we will move quickly because of our shift in governance away from being top down.

Pat: The mindset shift is to understand that the airplane is the boss.

Pat: The airplane tells us what to do.

Pat Shanahan: Our mechanics, sealers, engineers, and inspectors are like surgeons; they tell us in management what they need to perform their operations. Our goal is to give them what they need, when they need it, and resolve issues or make improvements. Receptivity from our teammates across our facilities, shop floors, and offices has been positive. I also appreciate their candor and telling me what's on their minds.

Pat: Our mechanics, Sealers engineers and inspectors are like surgeons.

Pat: They tell us and management with.

Pat: What they need to perform their operations.

Pat: Our goal is to give them what they need when they need it and resolve issues, we're making improvements.

Pat: Receptivity from our teammates across our facilities shop floors and offices has been positive.

Pat: I also appreciate their candor and telling me what's on their minds.

Pat Shanahan: I've heard from every corner of the factory in Wichita and from every shift. Lots of energy, lots of ideas. This does not surprise me.

Pat: I've heard from every corner of the factory in Wichita and from every shift.

Lots of energy lots of ideas.

Speaker Change: This does not surprise me.

Pat Shanahan: Our workforce at Spirit has a clear understanding of the importance of their work. That commitment is rooted in a long legacy we have in this industry. In the coming weeks, we will learn more from the regulators, from their formal reporting, and will respond with urgency and transparency. Now I'll shift to a couple other topics I think you have on your mind as well.

Speaker Change: Our workforce that spirit has a clear understanding of the importance of their work.

Speaker Change: That commitment is rooted in a long legacy we have in this industry.

Speaker Change: In the coming weeks, we will learn more from the regulators from their formal reporting and will respond with urgency and transparency.

Speaker Change: Now I'll shift to a couple of other topics I think you have on your mind as well.

Pat Shanahan: First, we made significant progress in the fourth quarter in stabilizing the 737 Production Line. We briefly paused the line to stabilize, which ultimately allowed us to deliver 104 fuselages, the highest quarterly total in four years.

Speaker Change: First we made significant progress in the fourth quarter and stabilizing the 787 production line.

Speaker Change: We briefly pause the line to stabilize which ultimately allowed us to deliver 104 fuselages.

Speaker Change: <unk> quarterly total in four years.

Pat Shanahan: We've made investments during the quarter to recover the schedule and buffer the production system, which enabled us to start the year with a balanced factory. Second, we recognize additional forward losses on the A350 and A220 programs this quarter, which Mark will address in a moment. That said, we are working to not only improve these programs in our day-to-day operations but also are engaged in discussions with Airbus to address the long-term financial issues. The negotiations with Airbus continue and have been productive. We hope to conclude by February, but we need to ensure all items are addressed. We are converging on operational and financial solutions. I appreciate the partnership and engagement by their leadership.

Speaker Change: We made investments during the quarter to recover schedule and buffer the production system, which enabled us to start the year with a balanced factory.

Speaker Change: Second we recognized additional forward losses on the <unk> hundred 50, and <unk> hundred 20 programs this quarter, which mark will address in a moment.

That said, we are working to not only improve these programs in our day to day operations, but.

Speaker Change: But also are engaged in discussions with Airbus to address the long term financials.

Speaker Change: The negotiations with Airbus continue and have been productive.

We hope to conclude by February, but we need to ensure all items are addressed.

Speaker Change: We're converging on operational and financial solutions.

Speaker Change: I appreciate the partnership and engagement by their leadership.

Pat Shanahan: This remains an important near-term priority for me. I'll now turn the call over to Mark to review with you our financial results. Thanks, Pat, and good morning, everyone.

Speaker Change: This remains an important near term priority for me.

Speaker Change: I'll now turn the call over to Mark.

Mark Inchcape: To review with you our financial results.

Mark Inchcape: Thanks, Pat and.

Mark Inchcape: And good morning, everyone.

Mark Sachin: We experienced significant pressures in 2023 due to production schedule volatility, supply chain constraints, and ongoing inflation. Quality Challenges and Increased Labor Costs. This resulted in higher-than-anticipated costs throughout the year.

Mark Inchcape: We experienced significant pressures in 2023 due to production schedule volatility supply chain constraints and ongoing inflation quality challenges and increased labor costs.

Mark Inchcape: This resulted in higher than anticipated costs throughout the year. However, we also accomplished a major milestones during the year, including reaching our contractual resolution with our largest union, bringing Pat onboard to lead spirits recovery and executing a favorable agreement with our largest customer.

Mark Sachin: However, we also accomplished some major milestones during the year, including reaching a contractual resolution with our largest union, bringing Pat on board to lead Spirits Recovery, and executing a favorable agreement with our largest customer. We also did a debt refinance and a capital raise, which strengthened our capital structure and increased production rates across many of our major programs. While we expect some of these pressures from 2023 to continue into 2024, we enter the year strongly focused on execution to stabilize and strengthen morale both operationally and financially. Given the latest news around the 737 max production rates in relation to the FAA approval, as well as our ongoing negotiations with Airbus, we are not in a position to provide guidance at this time.

Mark Inchcape: We also did a debt refinance in the capital raise which strengthened our capital structure.

Mark Inchcape: And increased production rates across many of our major programs.

Mark Inchcape: While we expect some of these pressures from 2023 to continue into 2024, we entered the year strongly focused on execution to stabilize and strengthen spirit, both operationally and financially.

Mark Inchcape: Given the latest news around the 737, Max production rates in relation to the FAA approval as well as our ongoing negotiations with Airbus. We are not in a position to provide guidance at this time.

Mark Sachin: Now, let me take you through the details of our fourth quarter financial results. Let's start with slide two. Revenues for the quarter were $1.8 billion, up 37% from the fourth quarter of 2022. This substantial increase year over year was primarily due to higher production on our commercial programs, increased defense in space, and aftermarket segment revenue, as well as the impacts from the previously disclosed Boeing MOA executed in October of 2023, which included favorable pricing adjustments on the 787 program. Overall, deliveries in the quarter increased 16% year-over-year.

Mark Inchcape: Now let me take you through the details of our fourth quarter financial results, let's start on slide two.

Mark Inchcape: Revenues for the quarter were $1 8 billion.

Up 37% from the fourth quarter of 2022.

Mark Inchcape: This substantial increase year over year was primarily due to higher production on our commercial programs increased defense and space and aftermarket segment revenues as well as the impacts from the previously disclosed Boeing MLA executed in October of 2023, which included favorable pricing adjustments on the <unk>.

Mark Inchcape: 87 program.

Mark Inchcape: Overall deliveries in the quarter increased 16% year over year.

Mark Sachin: Now, turning our attention to EPS, we reported earnings per share of positive $0.52 compared to negative $2.32 in the fourth quarter of 2022. Excluding certain items, adjusted EPS was $0.48 compared to negative $1.46 in the prior year, and operating margin was positive 11% compared to negative 11% in the same period of 2022, largely driven by the favorable impacts from our Boeing MOA. As a result of the favorable pricing adjustments to the 787, we reversed $361 million of total liabilities during the fourth quarter, which included 787 forward loss reversals of $206 Fourth quarter net forward loss reversals totaled $34 million, and unfavorable cumulative catch-up adjustments were $55 million.

Mark Inchcape: Now turning our attention to EPS.

Mark Inchcape: We reported earnings per share of positive 52 compared to negative $2 32.

Mark Inchcape: In the fourth quarter of 2022, excluding certain items adjusted EPS was <unk> 48 cents compared to negative $1 46 in the prior year.

Mark Inchcape: Operating margin was positive 11% compared to negative 11% in the same period of 2022, largely driven by the favorable impacts from our bowling MLA.

Mark Inchcape: As a result as at favorable pricing adjustments to the 787, we reversed $361 million of total liabilities during the fourth quarter, which included 787 forward loss reversals of $206 million, which favorably reduced cost of sales.

Mark Inchcape: And reversal of 787 material right obligation of $155 million, which flow through the income statement as an increase to revenue.

Fourth quarter net forward loss reversals totaled $34 million, an unfavorable cumulative catch up adjustments were $55 million this compared to $114 million afford losses and $59 million of unfavorable cumulative catch up adjustments in the fourth quarter of 2022.

Mark Sachin: This compared to $114 million of forward losses and $59 million of unfavorable cumulative catch-up adjustments in the fourth quarter of 2022. The current quarter forward losses relate primarily to the A350 and A220 programs and were driven by higher estimates of supply chain, labor, and other costs. We also recorded net incremental forward losses for anticipated performance obligations beyond 2025 in the amount of approximately $30 million.

Mark Inchcape: The current quarter forward losses relate primarily to <unk> hundred 50, and <unk> hundred 20 programs and were driven by higher estimates of supply chain labor and other costs.

Mark Inchcape: We also recorded net incremental forward losses for anticipated performance obligations beyond 2025, and the amount of approximately $30 million.

Mark Inchcape: The unfavorable cumulative catch up adjustments relate primarily to 737 program.

Mark Sachin: The Unfavorable Kilo of Catch-Up Adjustments relate primarily to 737 programs, reflecting higher costs required to recover and stabilize the production system, which we have done in the fourth quarter. Now turning to free cash flow, free cash flow for the quarter was positive 42 million compared to free cash flow usage of 66 million in the fourth quarter of 2022.

Mark Inchcape: Reflecting higher cost required to recover and stabilize the production system, which we have done in the fourth quarter.

Mark Inchcape: Now turning to free cash flow.

Mark Inchcape: Free cash flow for the quarter was positive $42 million compared to free cash flow usage of $66 million in the fourth quarter of 2022.

Mark Inchcape: Fourth quarter free cash flow includes the previously disclosed funding of approximately $100 million received from Boeing per the terms of the MLA and tooling and capital through 2025 on both the $737 million 787 programs.

Mark Sachin: Fourth quarter free cash flow includes the previously disclosed funding of approximately $100 million received from Boeing under the terms of the MOA for tooling and capital through 2025 on both the 737 and 787 programs. In our effort to stabilize operations, we also made certain working capital investments and accelerated certain capital investments in the fourth quarter of 2023. Now, let's discuss our quarterly segment performance, starting with our commercial segment on slide three. In the fourth quarter of 2023, commercial revenues increased 43% over the same period in 2022 due to higher production across all of our programs, as well as favorable pricing from the 787 Boeing MOA. The quarterly operating margin increased to positive 17%, compared to negative 8% in the prior year, primarily driven by a favorable change in estimates recorded in the current period.

In our effort to stabilize operations. We also made certain working capital investments and accelerated certain capital investments in the fourth quarter of 2023 now, let's discuss our quarterly segment performance starting with our commercial segment on slide three.

Mark Inchcape: In the fourth quarter of 2023 commercial revenues increased 43% over the same period 2022 due to higher production across all of our programs as well as favorable pricing from the 787 Boeing MLA.

Mark Inchcape: Quarterly operating margin increased to positive, 17% compared to negative 8% in the prior year, primarily driven by favorable change in estimates recorded in the current period.

Mark Sachin: These changes in estimates, which I previously disclosed, included net forward loss reversals of $48 million and unfavorable cumulative catch-up adjustments of $51 million. In comparison to the fourth quarter of 2022, the segment recorded charges of $111 million for forward losses and $58 million for unfavorable cumulative catch-up adjustments. Now let's turn to the defense and space segment on slide four. Defense in space grew to 205 million, up 12% higher than the fourth quarter of last year due to higher development program activity and increased KC-46 tanker production. Operating margin for the quarter decreased to 2% compared to 11% in 2022, primarily due to higher unfavorable changes in estimates recorded in the period.

These changes in estimates, which I previously disclosed included net forward loss reversals of $48 million and unfavorable cumulative catch up adjustments of $51 million in comparison to the fourth quarter of 2022. The segment recorded charges of $111 million of forward losses, and $58 million of unfavorable cumulative catch up and.

Mark Inchcape: Adjustments.

Mark Inchcape: Now, let's turn to defense and space segment on slide four.

Mark Inchcape: Yeah.

Mark Inchcape: Defense and space grew to $205 million up 12% higher than the fourth quarter of last year due to higher development program activity and increased KC 46 tanker production.

Mark Inchcape: Operating margin for the quarter decreased to 2% compared to 11% in 2022, primarily due to higher unfavorable changes in estimates recorded in the period.

Mark Sachin: The segment recorded four losses of $13 million and unfavorable cumulative catch-up adjustments of $4 million, compared to four losses of $2 million in the fourth quarter of 2022. The four losses were primarily driven by higher production cost estimates on the CH53K program and unfavorable cumulative catch-up adjustments, which were primarily driven by the Boeing P-8 program. For our aftermarket results, let's turn to slide five. Aftermarket had a strong quarter with revenue of 91 million, up 24% compared to the fourth quarter of 2022, primarily due to higher spare parts sales. Aftermarket has continued to grow with global aircraft recovery and is on track to meet our plan for $500 million by 2025. Operating margin was strong for the quarter at 23% compared to 13% during the same period of 2022, primarily due to the absence of a one-time inventory adjustment charge recognized in the fourth quarter of 2022.

Mark Inchcape: The segment recorded forward losses of $13 million and unfavorable cumulative catch up adjustments of $4 million compared to forward losses of $2 million in the fourth quarter of 2022.

Mark Inchcape: The forward losses were primarily driven by higher production cost estimates on the CH 53, K program, an unfavorable cumulative catch up adjustments, which were primarily driven by the Boeing program.

Mark Inchcape: For our aftermarket results, let's turn to slide five.

Mark Inchcape: Aftermarket had a strong quarter with revenue of $91 million up 24% compared to the fourth quarter of 2022, primarily due to higher spare parts sales.

Mark Inchcape: Aftermarket has continued to grow with global air traffic recovery and is on track to meet our plan for $500 million by 2025.

Operating margin was strong for the quarter at 23% compared to 13%. During the same period of 2022, primarily due to the absence of a onetime inventory adjustment charge recognized in the fourth quarter of 2022.

Mark Inchcape: With that lets now briefly touch on our full year results on slide six.

Mark Inchcape: 2023 revenue came in at 6 billion, that's up 20% year over year, driven by higher commercial production volumes as well as higher defense and space and aftermarket segment revenues.

Mark Sachin: With that, let's now briefly touch on our full year results on slide six. 2023 revenue came in at $6 billion. That's up 20% year-over-year, driven by higher commercial production volumes, as well as higher defense and space and aftermarket segment revenue. 2023 Adjusted EPS decreased year-over-year primarily due to higher interest and other expenses partially offset by improved operating income during the current year.

Mark Inchcape: 123, adjusted EPS decreased year over year, primarily due to higher interest and other expenses, partially offset by improved operating income during the current year.

Mark Inchcape: Other expense for 2023 was $1 40 compared to other expenses of $14 million in 2022, primarily due to higher noncash losses related to settlement accounting for our primary U S pension plan foreign currency and sales of receivables were recognized in 2023.

Mark Sachin: Other expense for 2023 was $140 compared to other expenses of $14 million in 2022, primarily due to higher non-cash losses related to settlement accounting for our primary U.S. pension plan, cryptocurrency, and sales of receivables recognized in 2023. Full year cash flow was a usage of $374 million compared to a use of $516 million in 2022. Free cash flow usage was higher than we previously expected, primarily due to factory costs incurred in the quarter to recover schedule and stabilize operations, higher levels of inventory to support rate increases, as well as increased CAPEX spend related to the customer-funded capital and tooling received as part of the Boeing MOA. With that, let's now turn to cash and debt balances on slide seven. We ended the year with $824 million in cash, which reflects the proceeds from the issuance of common stock and exchangeable senior notes during the fourth quarter of 23.

Mark Inchcape: Full year cash flow was a usage of $374 million compared to a use of 516 in 2022.

Mark Inchcape: Free cash flow usage was higher than we previously expected primarily due to factory cost incurred in the quarter to recover schedule and stabilize operations higher levels of inventory to support rate increases as well as increased capex spend related to the customer funded capital and tooling received as part of the Boeing MLA.

Mark Inchcape: With that let's now turn to cash and debt balances on slide seven.

Mark Inchcape: We ended the year with $824 million of cash, which reflects the proceeds from the issuance of common stock and exchangeable senior notes during the fourth quarter of 'twenty. Three we will use the if converted method regarding exchangeable notes implications to EPS, which results in the shares being dilutive.

Mark Inchcape: There was positive net income if net loss position.

Mark Inchcape: They would be anti dilutive we ended the year with $4 1 billion of debt. There are now no significant debt maturities until 2026.

Speaker Change: So with that.

Speaker Change: We will be happy to take your questions.

Thank you.

Speaker Change: If you would like to ask a question.

Please press star followed by one on your telephone keypad.

Mark Sachin: We will use the if converted method regarding exchangeable notes implications on EPS, which results in the shares being dilutive if there is positive net income. If there is a net loss position, they would be anti-dilutive. We ended the year with 4.1 billion of debt. There are now no significant debt maturities until 2026.

Speaker Change: If you read that terminate that question for any reason please press star followed by Keith.

Speaker Change: And again is tile line for any questions.

Speaker Change: We deal pays off.

Speaker Change: That you please limit yourself to one question and.

Speaker Change: And we will pause briefly ask questions off that just yet.

Speaker Change: We have the first question on the sidelines.

Operator: So with that, we will be happy to take your questions. Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to remove that question for any reason, please press star followed by two.

Speaker Change: Seitman J P Morgan.

Speaker Change: Hey, thanks, very much and good morning, everyone.

Speaker Change: Pat Thanks, very much for the comments at the at the beginning of the call.

Operator: And again, it is file one for any questions. And we do please ask that you please limit yourself to one question. And we will pause here briefly as questions are registered. We have the first question on the phone lines from Seth Seifman of J.P. Morgan. Hey, thanks very much. And good morning, everyone.

Speaker Change: I guess maybe to.

Level set a bit were 737 is right now you talked about.

Speaker Change: Kind of.

Speaker Change: Stabilizing the factory in the fourth quarter does that mean stabilizing at a production of 38 months and if we if we took it has been that it's up to the FAA now when that rate will move higher but if we took it as a given that that that's the rate for 2024 that spear.

Seth Seifman: Pat, thanks very much for the comments at the beginning of the call. I guess maybe to level set a bit where 737 is right now, you talked about kind of, you know, stabilizing the factory in the fourth quarter. Does that mean stabilizing at a production of 38 per month? And if we, you know, if we took it as a given that, you know, it's up to the FAA now when that rate will move higher? But if we took it as a given that that's the rate for 2024, that, you know, Spirit is now in a place to produce at that rate through the year, and that what we saw, you know, what we've read about over the past few weeks since the Alaska accident, and, you know, specifically yesterday with the latest mis-drilling issues and Boeing's effort to cut down on traveled work, you know, do you Good morning, Seth.

Speaker Change: Spirit is now in a place to produce at that rate through the year and that what we saw what we've read about over the past few weeks since the Alaska accident, and specifically yesterday with the latest.

Speaker Change: Mitch trailing issues and boeing's effort to cut down on traveled work.

Speaker Change: Do you still kind of consider the factory to be stabilized at 38 a month.

Speaker Change: Good morning, Seth I would tell you that.

Speaker Change: We are cycling that.

Speaker Change: 42, a month.

Speaker Change: But building at 38 a month.

Speaker Change: By that I mean, we have.

Speaker Change: A production schedule that allows us to have buffer days and thats. Our means of testing our ability to go up in rate and the buffer those buffer days allow the factory too.

Pat Shanahan: I would tell you that we are cycling at forty-two percent of my... but building at 38th and, and by that, I mean we have a production schedule that allows us to have buffer days. And it's our means of testing our ability to go up in rate. And that buffer, those buffer days allow the factory to talk about stability, minimize traveled work, and have everybody stay in position. So from that standpoint, we're in a good position, and we'll take our guidance from Boeing on how to adjust our schedules if necessary. Yeah, maybe I'll just address those two non-conforming holes. Those are not a safety of flight issue and just kind of characterize the normal process. Anytime there's a non-conformity, basically scope and bound it.

Speaker Change: When we talk about stability.

Speaker Change: Minimized traveled work.

Speaker Change: Everybody stay in position so.

Speaker Change: From that standpoint.

Speaker Change: We're in a good position and we'll take our guidance from Boeing as to.

Speaker Change: How to adjust our schedules if necessary.

Speaker Change: Yeah, maybe I'll just <unk>.

Speaker Change: Dress those two non conforming holes.

Speaker Change: Those are not a safety of flight issue.

Speaker Change: And just kind of characterize the normal process anytime theres a nonconformity.

Speaker Change: <unk>.

Speaker Change: Basically scope and bounded.

Speaker Change: Engineering does a preliminary look to see if there's a safety of flight issue.

Then essentially.

Speaker Change: We communicate to the customers if there is any potential exposure, but we say.

Speaker Change: Here's a heads up.

Speaker Change: And we do a detailed engineering analysis.

Pat Shanahan: Engineering does a preliminary look to see if there's a safety of flight issue, then essentially, we communicate with the customers if there's any potential exposure, but we say, you know, here's a heads up, and then we do a detailed engineering analysis. I work to get a final disposition, and it's when we have a final disposition that we can determine a repair, and from that, a response, relative to these two holes. However, there is not yet a final engineering disposition.

Speaker Change: Work to get our final disposition when we have a final disposition that we can determine a repair and from that a response.

Speaker Change: Relative to these two holes there.

Speaker Change: There is not a final engineering disposition, we expect that in the next 72 hours.

Speaker Change: Just on that will determine what the repair might be.

Speaker Change: The impact associated with that and then the follow on as a root cause corrective action.

Speaker Change: Maybe just we have about.

Pat Shanahan: We expect that within the next 72 hours. Based on that, we'll determine what the repair might be and any impact associated with that. And then the follow-on is a root cause corrective action. Maybe just to add on to that, I think we have about... You bet. Okay, I'll stick to one this morning, thanks.

Speaker Change: Sure you bet.

Speaker Change: Okay.

Speaker Change: I'll stick to one is Brian thanks.

Brian: Thanks Seth.

Brian: Thank you we now have David Strauss with Barclays. You May proceed with your question.

David Strauss: Thanks. Good morning quick quick follow up there what is the what is the status of the the Max buffer stock.

David Strauss: As it relates to you matching up with with Boeing in terms of your production rate and then on.

Seth Seifman: Thanks. Thank you. We now have David Strauss of Barclays.

David Strauss: You may proceed with your question. Thanks. Good morning.

David Strauss: On the Airbus side of things the $5 million.

David Strauss: Quick, quick follow up there. What is the status of the max buffer stock as it relates to, you know, you matching up with Boeing in terms of your production rate? And then on, on, on the Airbus side of things, the 5 million. Mark us on the balance sheet. At this point, is that really all 8-2-20, 8-3-6?

David Strauss: Mark.

David Strauss: On the balance sheet at this point is that really all 820 <unk> hundred <unk>.

David Strauss: And negotiations conclude with Airbus should we expect to see a significant reversal there. Thank you.

David Strauss: Okay.

Let's take the Airbus won.

Mark Inchcape: Yeah, Sure Hey, David Let me address your second comment in regards to the balance sheet and the forward loss.

Operator: Negotiations conclude with Airbus. Should we expect to see a significant reversal there? Thank you. The Allen Institute, LLC. All rights reserved.

Speaker Change: <unk> that we have both short term and long term I think we met.

Speaker Change: We mentioned this on the last call as it relates to Boeing and the 787 program. We stated that we would we would be in a forward loss through 'twenty four maybe slightly into into the first quarter 2025, So really the short term forward loss is.

Mark Sachin: Airbus 1, Sure. Hey, David, let me address your second comment, you know, in regards to the balance sheet and the forward loss reserves that we have both short-term and long-term. I think we met, and we mentioned this on the last call as it relates to Boeing and the 787 program. We stated that we would be in a forward loss through 24, maybe slightly into the first quarter of 2025. So really, the short-term forward loss has some 787 in it as we come down our unit cost curves and drive that to cashflow positive in 2025. And then it would include the A350, as you indicated, and the A220, and a little bit on 67 and CH53K. But I think you have got it right.

Speaker Change: Has some 787 in there as we come as we come down our unit cost curves and.

Speaker Change: And drive that to cash flow positive in 2025, and then it would include the <unk> hundred 50, as you indicated in the 820 and a little bit.

Speaker Change: Little bit on 67 million and CH 53, K, but I.

Speaker Change: I think you got it right.

Speaker Change: Maybe just to answer the question about the buffer or what we refer to as the ship in place or 42 available units today to ship in place.

Speaker Change: We're taking a few extra days, so think of that as a.

Speaker Change: Delay on some of the deliveries to rent and just to make sure. We can complete all the inspections related to the mid to entry door plug as well as any.

Mark Sachin: You know, maybe just to answer the question about the buffer or what we refer to as the ship in place, there are 42 available units today for the ship in place. We're taking a few extra days to think of that as a delay on some of the deliveries to rent to make sure we can complete all the inspections related to the mid-entry door plug, as well as any known rework and conduct some additional inspections. Thank you. Thanks, David. We now have Jason Nagoski of Citigroup. Your line is now closed. Great Good morning, everybody. Let's see, maybe, maybe a two part question. I apologize for that.

Speaker Change: Rework and doing Smith conducting some additional inspections.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Thanks, David.

Speaker Change: We now have Jason Gursky Citi Greg.

Jason Gursky: Your line is open.

Jason Gursky: Great Good morning, everybody.

Speaker Change: Let's see maybe maybe a two part question I apologize for that.

Jason Gursky: With that I am wondering if you can just fix.

Jason Gursky: To fix a problem you got to understand exactly how you got here. So I was wondering if you could just from your perspective describe a little bit about the conditions that.

Jason Gursky: Led us to where we are today.

Jason Gursky: It sounds like you've got a plan to fix some things I'm just kind of curious to get your input on.

Jason Gursky: How we got here and then the second part of the question is.

Jason Nagoski: Pat, I wonder if you can just, you know, to fix a problem, you have to understand exactly how you got here. So I was wondering if you could just, from your perspective, describe a little bit about the conditions that led us to where we are today. Sounds like you've got a plan to fix something. I'm just kind of curious to get your input on how we got here.

Jason Gursky: Once we figure this all out.

Jason Gursky: Has anything kind of fundamentally changed on the types of rate breaks that you can do it.

Jason Gursky: In the future I know Boeing's got a master schedule out there and historically you guys have gone up 10, 15% of different rate breaks and hold for a bit before going back up again. So I'm just wondering in the context of all of this.

Jason Gursky: Whether things have fundamentally changed in the industry of the industry's view on its ability to go up in rate and whether we go up slower than we have in the past. Thanks.

Pat Shanahan: And then the second part of the question is, you know, once we figure this all out, has anything kind of fundamentally changed about the types of rate breaks that you can do in the future? I know Boeing's got a master schedule out there. And historically, you guys have gone up 10, 15 percent at different rate breaks and then held for a bit before going back up again. So I'm just wondering, in the context of all of this, whether things have fundamentally changed in the industry or the industry's view of its ability to go up in rates and whether we will go up slower than we have in the past. Thanks. Yeah, hey, Jason. I think it's hard to go back and look at how we got here. I wish I could do that.

Speaker Change: Yeah, Hey, Doug Jason.

Doug: It's hard to go back and look at how we how we got here I wish I had that.

Sure.

Doug: History.

Speaker Change: But what I would tell you is the basic fundamentals around rate breaks haven't changed.

Doug: Some of the dynamics around the supply chain have changed.

Doug: I would offer that some of the work that.

Doug: Spirit has done in the fourth quarter to align that.

Doug: 2024 plan with Boeing's.

Doug: <unk> schedule has afforded us some more stability.

Doug: We have used that time to improve the dynamics of the supply chain.

Doug: We've seen a lot of improvement in the near term to support rate 42.

Pat Shanahan: History. But what I would tell you is the basic fundamentals around rate breaks haven't changed. Some of the dynamics around the supply chain have changed. I would offer that some of the work that Spirit has done in the fourth quarter to align the. The 2024 plan with Boeing, the rate schedule, has afforded us some more stability, and we have used that time to improve the dynamics of the supply chain. We've seen a lot of improvement in the near term to support rate 42. As it relates to rate 47, we have a line of sight on virtually all the issues. Bye.

Doug: As it relates to rate 47, we have line of sight on.

Doug: Virtually all of the issues five.

Doug: The players that we have to give special attention to but at this point the majority of the issues related to raw material and labor availability.

Doug: I think the hardest part of this industry has given its complexity.

Doug: Brett how do you judge how quickly to go up in rate.

Brett: In the case of the.

Brett: 737.

Brett: Been done before so there's a playbook that.

Pat Shanahan: Suppliers that we have to give special attention to. At this point, the majority of the issues are related to raw material and labor availability. I think the hardest part of this industry is given its complexity, and Brett, how do you judge how quickly to go up? In the case of the 737, it's been done before. So there's a playbook that, you know, parametrically says what you can do.

Brett: Fair Metrically says this is what you can do but we have to adjust that for current events in the environment, but.

Brett: I would say that the 2024 plan we laid out.

Brett: As a.

Brett: Corporate rates.

Brett: The.

Brett: Existing environment and.

Brett: If there are any changes will accommodate boeing's direction.

Speaker Change: Great. Thank you.

Speaker Change: Thank you, we now have Myles Walton of Wolfe research.

Speaker Change: Yeah.

Pat Shanahan: We have to adjust that for, you know, current events in the environment. I would say that the 2024 plan we laid out is a incorporated existing environment, and if there are any changes, we'll accommodate Boeing's direction. Great, thank you. Thank you. We now have Myles Walton of Wolfley.

Myles Walton: Thanks, Pat Youre in a pretty unique position, having been inside of Boeing Vice president of commercial airplanes for for time and now inside of spirit and can sort of give the perspective I think of.

Myles Walton: What if and what if as if Wichita were still part of Boeing with the signals with the Boeing quality.

Myles Walton: © The Bulletproof Executive 2013, Thanks, Pat, you're in a pretty unique position having been inside of Boeing, Vice President of Commercial Airplanes for a time and now inside Spirit and can sort of give the perspective, I think, of What if, and the what if is if Wichita were still part of Boeing, would the signals, would the Boeing quality, the QMS system, have captured these quality escapes sooner? And if so, does that create industrial logic for, for some element of reabsorption, or is the solution just a greater integration into Boeing's existing QMS? I guess I would respond.

Myles Walton: The <unk> system have captured these quality escapes sooner.

Myles Walton:

Speaker Change: And if so does that create an industrial logic for for some element of re absorption or is the solution just a greater integration into Boeing existing qos.

Speaker Change: I guess I would respond not so much to the hypothetical but the fact that.

Speaker Change: We're behaving as if we were part of Boeing and that.

Pat Shanahan: Not so much because of the hypothetical, but the fact that we're behaving as if we were part of Boeing, and then... Coordination and the integration I mentioned are really taking place now. So, if you sat in one of our meetings, and if people took off their badges, you would not be able to tell which company they worked for.

Speaker Change: The coordination and the integration.

Speaker Change: She referred to is really taking place now so if.

If you sat in one of our meetings.

Speaker Change: Hugh.

Speaker Change: People took off their badges, you would not be able to tell which company they worked for.

Speaker Change: I think.

Pat Shanahan: Thank you, because of the trust that's been built recently, some of the feedback loops that The Bulletproof Executive 2013, So, just to clarify though, Pat, is that a change of behavior, the tightness of the feedback loop, or is that a reflection of what's always been the case since the departure? Yeah, I would, you know, I would, I think as a result of the MOA and the shedding of the financial. The Bulletproof Executive 2013, opened up the aperture to really work more seamlessly together, and we're seeing that. I think we're surprised every single day how much more quickly people are, you know, working shoulder to shoulder. So, I think the MOA was the best big change that allowed us to increase the integration between Okay. All right. I'll stick to just one.

Speaker Change: Because of the trust that's been built recently some of the feedback loops that <unk>.

Speaker Change: Existed in the past are being restored and that should allow us to even work better together.

So just to clarify, though Pat is that a change of behavior of the tightness of the feedback loop or is that a reflection of what's always been the case.

Pat: Archie I would.

Speaker Change: I think as.

Speaker Change: As a result of the Moe.

Speaker Change: Yes.

Speaker Change: Shedding of the financial constraints.

Speaker Change: <unk> opened up the.

Speaker Change: The aperture to really work more seamlessly together and we're seeing that and I think were surprised every single day, how much more quickly people are working shoulder to shoulder. So I think the MAA was.

Speaker Change: The big change that allowed us to increase the integration between the two companies.

Okay, Alright, I'll stick to one thank you.

Myles Walton: Thank you. Look. We now have Sheila Kennedy from Jeffreys. You may.

Speaker Change: Okay.

Cedar Canyon: We now have Cedar Canyon from Jefferies. You May proceed.

Sheila Kahyaoglu: Good morning, guys. Thank you. Pat, if I could ask you, in just its current state, how do we think about the 737 cash profile per ship set, just given potentially additional costs this year? How does that change with a rate break in 25 if the FAA does also limit you guys at 38 per cap? I'm not sure.

Cedar Canyon: Good morning, guys. Thank you.

Cedar Canyon: Pat if I can ask you.

Cedar Canyon: And just how do we think about second cash profile are ships that potentially additional costs. This year, how does that change with the rate break in 'twenty five.

Speaker Change: Does it also limit you guys at 38 of the top I'm not sure.

Sheila Kahyaoglu: And then into 26, the free cash flow per ship set, just given the step down? The Dispatch Profile is in the back. Yeah, no, no, no.

Cedar Canyon: 20 stocks that free cash flow per chipset.

Cedar Canyon: Just given the step down.

Speaker Change: I guess Pascal.

Speaker Change: Sheila I'm just trying to think.

Sheila: Yes, no no no.

Pat Shanahan: I mean, I... Obviously, when you go up in rates, you can distribute the overhead more broadly. They're the fundamentals of the things that we're doing in terms of The Bulletproof Executive 2013, Cost Reduction, and a lot of that's through productivity or... Improvement in Quality, so those things aren't going to change. We've built a plan around achieving. Support. Labor or support.

Sheila: I mean, obviously when you go up in rates you can distribute the overhead more broadly.

Sheila: The fundamentals of the things that we're doing in terms of.

Sheila: Improving cash flow or.

Sheila: Cost reduction and a lot of that is true productivity or improvement in quality. So those things are going to change.

Sheila: We've built a plan around achieving.

Sheila: Support labor or support.

Pat Shanahan: The cost that mirrors our performance in 2018, we're working to that regardless, of a chain. The Bulletproof Executive 2013, direction from Boeing, so that might dampen a bit. Indirect costs, we're going after the same way; probably the one that wouldn't be affected by rate is working capital, to optimize that, you know, to a much larger degree. Last year, we were, Participating being at a much higher rate.

Sheila: I will say cost that mirrors, our performance in 2018, where we're working to that regardless of a change.

Sheila: <unk>.

Sheila: Direction from Boeing so that might dampen a bit indirect costs were going after the same way.

Sheila: Robert I believe.

Speaker Change: One that.

Robert: Wouldn't be affected by rate as working capital because.

Robert: We just need to optimize that to a much larger degree yet last year, we were anticipating being at a much higher rates. So theres, a real opportunity to there there regardless of where the rates stabilize that.

Pat Shanahan: So there's a real opportunity there regardless of where the rates, you know, stabilize at. Q&A, any other comments? I think you hit it, Pat.

Speaker Change: Mark you had any other comments.

Mark Inchcape: No I think you hit it Pat obviously, Sheila as you go up in rate you get the.

Mark Sachin: Obviously, Sheila, as you go up in rate, you get leverage from the higher production rates from an absorption standpoint. But at the end of the day, I think the key here is... As we look over the next couple of years, it's about operating the factories efficiently, leaning it out, working on flow, working on the items that Pat talked about, and he's got the teams really rallied around that, and so we're really excited over the next couple of years as we go up in rate to see the financial benefits of those production rates through the variety of actions So we do think over the next couple of years we'll continue to drive our unit costs down and take advantage of higher production rates. Sheila, maybe just one add-on here? I think we have to think about the supply chain. I mean, I think that's the one that's...

Mark Inchcape: You get the leverage from the higher production rates from an from an absorption standpoint, but at the end of the day I think the key here is.

Mark Inchcape: As we as we look over the next couple of years.

Mark Inchcape: It's about <unk>.

Mark Inchcape: Operating the factories efficiently.

Leaning it out working on flow working on the items that Pat talked about and he is got the teams really rallied around that and so we're we're really excited over the next couple of years as we go up in rate.

Mark Inchcape: To see that financial benefits of those production rates through the variety of actions that we're working on including focusing on improving overall quality. So we do think over the next couple of years, we will continue to drive our unit cost down and take advantage of the higher production rates.

But maybe just one add on here.

Speaker Change: I think we have to think about the supply chain I mean, I think that's the one that.

Speaker Change: If we do.

Pat Shanahan: If we do, Production Race, we have to figure out what to do with the things that we already have. How do we keep them healthy?

Speaker Change: <unk>.

Production rates, we have to figure out.

Speaker Change: What do we do with.

Speaker Change: With the things that we've already ordered.

Speaker Change: How do we keep them healthy.

Speaker Change: So that.

Speaker Change: As things get corrected we can go back to building fuselages, So I think that would be the the.

Sheila Kahyaoglu: that as things get corrected, we can go back to building fuselages. So I think that would be the one we still need to sort through. And just to follow up, given the Max is the biggest driver of your free cash flow, do you still expect Free Cash Flow to be positive in 24 without giving any guidance?

Speaker Change: One we still need to sort through.

Speaker Change: And just to follow up given the Max is the biggest shopping with you I think cash lab do you still expect.

Speaker Change: Do you expect free cash flow to be positive in 'twenty or without giving any guidance.

Speaker Change: Sheila let me just address that.

Mark Sachin: Sheila, let me just address that. You know, with the question marks around the production rate, increases in front of us that we had previously planned in 24, the Airbus negotiations, and then just trying to assess what additional costs may come as it relates to quality and regulatory oversight. You know, as we said in our press release, we're just not in a position to talk about cash flow.

Speaker Change: I think what I would tell you is.

With the.

Sheila: With the question marks around the production rate.

Sheila: Increases in front of us that we had previously planned in 'twenty for the Airbus negotiations.

Sheila: And then just trying to assess.

Sheila: What additional costs may come as it relates to quality and the regulatory oversight.

Sheila: As we as we said in our press release, we're just we're not in a position to talk about cash flow we know.

Mark Sachin: We know that it's an important aspect of our business here, and I'm not trying to avoid the topic. You know, we're working really hard to improve the overall business financially. But give us a little time to digest the current situation here.

Speaker Change: No that it's an important aspect of our business here and I'm not trying to avoid the topic.

Speaker Change: Working really hard to improve the overall business financially, but give us a little time to digest the current situation here and in the coming.

Sheila Kahyaoglu: And in the coming months, we'll be able to give you the answers that you guys are looking for, but I think we need a little bit more certainty. There's still too much uncertainty here for us to really dial this in and give you a more direct and concrete answer. So more to come. It's not now, but give us a little while, and we'll be able to address those questions. Sure, thank you.

Speaker Change: Coming months, we'll be able to give you. The answers that you guys are looking for but I think we need a little bit more certainty. There is there still too much uncertainty here for us to really dial this dialed in and give you a more direct and concrete answer.

Speaker Change: More to come it's not now, but give us a little while and we will be able to address those questions.

Speaker Change: Sure. Thank you.

Speaker Change: Thank you.

Scott: Thank you. Thank you. We now have Scott from Deutsche Bank. Hey, good morning. Pat, have you priced your content on B-21 yet? Please say that one more time.

Speaker Change: Thank you, we now have Scott <unk> from Deutsche Bank.

Speaker Change: Okay.

Scott: Hey, good morning, Pat have you priced your content on B 21, yet.

Scott: You say it one more time this is on the L. Rip.

Scott: B 21 have you priced here in Alberta.

Scott: This is on the LRIP. Thank you for watching. Yes, we have. Night.

Scott: Yes.

Scott: Yes.

Pat: We have not.

Pat: Not yet okay.

Pat Shanahan: Okay. And then, Pat, can you clarify what the operating elements might be with respect to the Airbus negotiations? Are you referencing moving some work over to them, or is this something else? Thank you.

Pat: And then Pat can you clarify what the operating elements might be with respect to the Airbus negotiations are you referencing moving some workover to them or is this something else. Thank you.

Pat Shanahan: Well, our focus has really been on price. The focus has really been on understanding between the two companies. What is the right level of productivity that should be achieved, that they're willing to pay for, and what is the cost we're all aligned on that is real and needs to be reflected in the price, and our discussions to date have been about substantiating both of those, and along with that, aligning expectations around our performance on the 220 and the 350. 24.

Pat: Well, our focus has really been on price.

Speaker Change: And the focus has really been on understanding.

Speaker Change: Between.

Speaker Change: The two companies.

Speaker Change: What is the right level of productivity that should be achieve that theyre willing to pay for and what is cost. We're all aligned on that is real.

Speaker Change: <unk> needs to be reflected in the price.

Speaker Change: Our discussions to date have been substantiated both of those.

Along with that aligning expectations around our performance on the $2 20, and $3 50 and 24.

Speaker Change: Yeah.

Speaker Change: Thank you.

Ken Herbert: Thank you. We now have Ken... We now have Ken Herbert of RBC Capital. Yeah, hi, good morning, Pat and Mark. I wanted to ask about inventory build; can you comment on at which rate you're pulling, say, max shipments from suppliers at? And depending upon your schedules with Boeing on the max, how much inventory are you prepared to build? And maybe how much of a use of cash is working capital this year versus maybe visibility on how much of a savings it can be in the back half of the year? Thanks, Ken. Let me take that one.

Speaker Change: Thanks, Josh Ken.

Speaker Change: Anthony Hopkins habits with RBC capital market.

Speaker Change: Yes, hi, good morning.

Speaker Change: Patent Mark.

Anthony Hopkins: I wanted to ask on an inventory build can you comment on which rate youre pulling same Max ship.

Anthony Hopkins: Shipments from suppliers that.

Anthony Hopkins: And.

Anthony Hopkins: Depending upon your schedules with Boeing on the Max how much inventory are you prepared to build in and maybe how much of a use.

Anthony Hopkins: Of of cash as working capital this year versus maybe visibility on how much of a savings that can be in the back half of the year.

Speaker Change: Thanks, Ken Let me, let me take that one.

Mark Sachin: You know, I think Pat briefly mentioned it, you know, as we move through 2023, we had expected to be at a higher rate at this point in time. We'd expected to deliver more than we finished the year out at. And so we built inventory throughout the year and ordered inventory from our suppliers in anticipation of that.

Speaker Change: I think Pat briefly mentioned it as we move through 2023.

Speaker Change: We had expected to be at a higher rate at this point in time, we'd expect it to deliver more.

Speaker Change: We finished the year out at.

Speaker Change: And so we built the inventory.

Ken: Throughout the year and ordered inventory from our suppliers in anticipation of that.

Mark Sachin: And that caused us to build inventory to help to support 42 a month. We've also tactically here in the fourth quarter built strategic buffers with critical components for our production system. So really, you saw throughout the year almost a $300 million increase in inventory through 2023. And that was in anticipation of higher rates.

Ken: And that caused us to build inventory.

Ken: Inventory to help to support 42, a month, we've also tactically here in the fourth quarter built strategic buffers at current at with critical components.

Ken: For our production system. So really you saw throughout the year almost $300 million increase in inventory.

Ken: Through 2023, and that was in anticipation of higher rates as we move into 2024, and where our plans are right here.

Mark Sachin: As we move into 2024, and where our plans are at here, we're not going to have to make that sizeable increase because we've got the suppliers tuned up to help support and produce and deliver 42 aircraft per month. So I would say that, you know, as we move into 2024, I would anticipate working capital the drag that we saw in 2023 to be relieved to a big degree. And so, you know, I think, in summary, suppliers are delivering to us at 42. Pat talked about what our factory's cycling to. And so, you know, our goal here is to really optimize working capital as we stabilize the factory. And we think that there's some work for us to do there. And we think that, as we move forward here, that will create a bit of a tailwind for our free cash.

Ken: We're not going to have to make that.

Ken: Sizable increase because we've got the suppliers tuned up to help support and produce and deliver at 42 aircraft per month. So.

Ken: I would say that as we as we move into 2024 I would anticipate.

Ken: Working capital.

Ken: The drag that we saw in 2023 to be released to a big degree.

Ken: And so I think in summary suppliers are delivering to us at 42, Pat talked about water factory cycling too.

Ken: And so our goal here is to is to really optimize the working capital.

Ken: As we stabilize the factory and we think that there is some work for us to go do there and we think that as we move forward here that will create a bit of a tailwind to our free cash flow.

Speaker Change: And maybe just to add on to what Mark, saying, they're discrete plans around our manager the suppliers and the buffer.

Pat Shanahan: Maybe just to add to what Mark's saying, there are discrete plans around how we're managing the suppliers and the buffer. So, Ken, one of the things we ask them to do is... protect the factory in terms of the critical jobs that need parts to maintain the build of the aircraft. And so in those critical areas, we've built buffers. They're also suppliers, when we look at their history, that are unpredictable. So those we will continue to work with, but we'll probably build some buffers. Then there are the highly reliable, consistent suppliers where we need to maximize inventory turnover, taking those bleeding down the inventory and trying to balance. They're the supplier's bill. We don't want to turn them off and starve them. At the same time, we've got to kind of optimize a way to get our inventory turns up. So it's a dance, and the teams are able to do it.

Speaker Change: So Ken one of the things we asked them to do is.

Speaker Change: Protect the factory in terms of the critical jobs.

Speaker Change: The parts to maintain the build of the aircrafts and so in those critical areas, we built buffer stock.

Speaker Change: Theyre also suppliers when we look at their history that are unpredictable.

Speaker Change: So those we will continue to work with but we'll probably build some buffer stock.

Speaker Change: And there are the highly reliable consistent suppliers, where we need to maximize inventory turns and the teams are taking those bleeding down the inventory and trying to balance.

Speaker Change: There the suppliers', bill, but I want to turn them off and starve them at the same time, we've got to kind of optimize way to get our inventory turns up so.

Speaker Change: It's a dance and the teams are able to do.

Ken Herbert: Pulled 10 levers whereas in the past, I think it was just ordering all the parts, so I expect to see it. Real improvement in 2024. Great. Thank you very much.

Speaker Change: Paul 10 levers, whereas in the past and it was just one.

Speaker Change: Order all the parts, so I expect to see them.

No real improvement in 2024.

Speaker Change: Great. Thank you very much.

Speaker Change: We now have Doug Harned.

Doug Honens: We now have Doug Honens of Bunstein. Good morning. Thank you. Pat, when you talked about the process redesign, introducing automation as some of the things you're doing to deal with quality escapes across the company, but, you know, I think of this on really two time scales, and that can be, and some of those things can be longer term, but at the same time, you have issues that may already be in things that have been done, like the mis-drilled holes that came up over the weekend. There's a lot of concern that there could be another incident like the Alaska Max 9 incident. How do you make sure that as you do the broader redesign, you can also identify any situations that might be an issue and things that have already been essentially produced? Yep, no, and good.

Douglas Stuart Harned: Thanks Dean.

Douglas Stuart Harned: Okay.

Douglas Stuart Harned: Good morning, Thank you.

Douglas Stuart Harned: Good morning.

Douglas Stuart Harned: When you talked about the process redesign and introducing automation.

Douglas Stuart Harned: As some of the things youre doing to deal with the quality escapes across the company but.

Douglas Stuart Harned: Think of this on really two timescales and and that can be and some of those things can be longer term, but at the same time.

Douglas Stuart Harned: You have issues that may already be in things that have been done like the miss drilled holes that came up over the weekend.

Douglas Stuart Harned: There's a lot of concern that there could be another incident like the Alaska Max nine incident, how do you make sure that as you do the broader redesign you can also identify any situations that might be an issue in things that have already been essentially produced.

Douglas Stuart Harned: Sure.

Speaker Change: Yeah no good.

Speaker Change: Thank you for that question.

Pat Shanahan: Thank you for that question and. I remember on the last call you asked me about just overall quality, and maybe we can expand on that. I think the short answer to that question is: our quality management system really looks at product quality, and the FAA's Safety Management System looks at product safety. So our first look at the 3-7 has been through the product safety lens. And maybe just in parallel, I think what you'll find is that there, you know, if we drew a Venn diagram, there'd be a lot of overlap between safety management. System Risk Assessment and feedback on nonconformities for our QMS.

Speaker Change: I remember the last call you asked me about just the overall quality and maybe we can expand into that.

Speaker Change: I think the short answer.

Speaker Change: To that question is.

Speaker Change: Our quality management system really it looks at.

Product quality.

Speaker Change: Phase safety management system.

Speaker Change: Looks at products safety.

Speaker Change: So our first look at the $3 seven has been through the product safety lens.

Speaker Change: And maybe just in parallel I think what you'll find is that there. If we drew a venn diagram, there would be a lot of overlap between the safety management system risk assessment and.

Speaker Change: Feedback nonconformity is for <unk>.

Pat Shanahan: But our first priority has been to look through the product safety lens. We have four discreet categories that we're evaluating. If you look at the installation plans that we have that direct how a 737 fuselage is built, there are 2,300.

Speaker Change: Our first priority has been to look through the product safety lens, we have four discrete categories that we're evaluating if you look at the installation plans that we have that direct how a 737 fuselages built through it.

Speaker Change: <unk> thousand 300.

Speaker Change: Through this lens of products safety, we've distilled it down to <unk>.

Pat Shanahan: Through this lens of product safety, we've distilled it down to 200 that we're going through and doing a detailed examination of, including observations of the mechanics and a review by our master mechanic of the build process. Then, You know, that's in parallel, I think, Doug, maybe to this broader question of what are you doing now about quality? And what are you doing long term?

Speaker Change: 200 that we're going through and doing a detailed examination of.

Speaker Change: To include observations of the mechanics in a review by our master mechanic of the build process.

Speaker Change: The.

Speaker Change: That's in parallel I think Doug maybe to this broader question of what are you doing now about quality and what are you doing the long term.

Pat Shanahan: And the short answer. For us, the spirit of quality is... Less manual, less interpretation, and more, medium-term and long-term, more human-assisted. Equipment and Technology. More automation. And when we think about, well, where is the focus? It's where most of the manual work is. It's in the forward and rear sections of the airplane.

Speaker Change: And the short answer.

Speaker Change: For us its spirit on quality is.

Speaker Change: Less manual less interpretation.

More inspections.

Speaker Change: Medium term and long term as more human assisted.

Speaker Change: Equipment and technology.

Speaker Change: More automation.

Speaker Change: And when we think about well where is the focus thats, where most of the manual work is in the forward and rear sections of the airplane.

Pat Shanahan: If you were a mechanic working in there, you'd almost have to be a gymnast. So we're really looking at, well, how do we address the human factors as some of this other technology is bridging to be implemented? We're very focused on four areas. The first is proficiency. You know, we got to test more; we got to train more. The second is compliance. I always think of Bill Belichick here. You know, do your job.

Speaker Change: If you're a mechanic working in there you'd almost have to be a gymnast. So we're really looking at how do we address the human factors is some of this other technology is bridging to be implemented.

Speaker Change: We're very focused in.

Speaker Change: Four areas the first is proficiency.

Speaker Change: Test, where we got a trained more than the second is compliance and.

Speaker Change: I always think of Bill Belichick here as you do your job. So part of the compliance pieces people have to show up and do their job.

Pat Shanahan: So part of the compliance piece is people have to show up and do their job. I mean, we will help them do their job, but there's an element of them needing to be committed, you know, to personal warranty. And the third thing is there's a lot of things we can do to prevent mistakes.

Speaker Change: We will help them do their job, but there is a.

Speaker Change: Element of they need to be committed to personal warranty.

Speaker Change: The third is there is a lot of things, we can do to mistake proof.

Speaker Change: The.

Speaker Change: The build of the aircraft in probably the last one is observation is not just more inspections, but it's our team spending more time on this.

Pat Shanahan: The last one is observation; it's not just more inspections, but our team is spending more time on the factory floor. So, you know, that when you were to come here to our war room and look at our plans, you'd see that we're really trying to address human factors in the near term, prioritized by product safety. And if I can just quickly follow up, is there a way to characterize where you are on this path?

<unk> floor. So that's if you were to come here to our war room and look at our plans you would see that we're really trying to address human factors in the near term prioritized by product safety.

Speaker Change: Okay.

Speaker Change: And if I can just quickly follow up is there a way to characterize it.

Speaker Change: Where you are on this path.

Doug Honens: I mean, you've now had a chance to be much closer to this over the last few months. You know, is there a way to characterize when you feel like, at least in the near term, the issues, the escapes that we have seen, that you've got a really solid handle on it and feel confident in what's being delivered? Yeah, I mean, that's the... Question that I think we all wrestle with, you know, how can we predict the future?

Speaker Change: You've now had a chance to be much closer to this over the last few months.

Speaker Change: Is there a way to characterize when you feel like at least in the near term here. The issues. The escapes that we have seen that <unk> got.

Speaker Change: Really solid handle on it and feel confident in that and what's being delivered I guess.

Speaker Change: Sure.

Speaker Change: Yes, I mean, that's the.

Speaker Change: Question that I think we all wrestle with how can we how can we predict the future it's hard.

Pat Shanahan: It's hard. I don't know how to predict it, but some of the things that we just talked about are the best ways to do that, so it's here in short order, making real progress and making these stick, I think will give us the belt and suspenders. www.globalonenessproject.org You know, we've been working with Boeing to Do More Inspection. And more inspections, as though we weren't doing a lot of inspections. I think what we're doing a better job of is harmonizing our work together so we're looking at it the same way, at the same time, all the time. We're trying to keep it here in Wichita.

Speaker Change: Michael I don't know how to predict it but some of the things that.

Speaker Change: We just.

Speaker Change: Talked about the best way to do that so it's.

Speaker Change: Here in short order.

Speaker Change: Real progress in making these things stick I think will.

Speaker Change: Give us the belt and suspenders confidence so we can mitigate this I'd say the other one is.

Speaker Change: We've been working with Boeing to do more inspections.

Speaker Change: And then more inspections isn't as though we weren't doing a lot of inspections, I think where we're doing a better job of is harmonizing. Our work together. So we're looking at it the same way at the same time all the time.

Speaker Change: Trying to keep it here in Wichita and these are some of them are.

Pat Shanahan: And these are, you know, some of them are, you know, our interpretation of fastener hide, Skin Quality, but those when we're working together to mitigate what ends up being found in Renton, where it's much more disruptive. Okay, thank you.

Speaker Change: Our interpretation of fastener hide or skin quality, but those when we're.

Speaker Change: Working together mitigate.

Speaker Change: Ends up being found in in Renton, where it's much more disruptive to fix.

Speaker Change: Okay. Thank you.

Doug Honens: Thanks, Doug. Thank you, Doug. We now have George Shapiro from Shapiro Research.

Speaker Change: Thanks, Doug.

Speaker Change: Thank you Doug we now have George Shapiro with Shapiro Research you May proceed with your question George.

George D. Shapiro: You may proceed with your question, George. Good morning. Mark, if I look at the underlying margins that you've had in commercial, I mean, you had 10-6 as the high in the first quarter, and you had relatively high 7-3-7 deliveries, but this quarter you had the highest 7-3-7 deliveries, and the margin was like 8-5. Now, is that just reflective of the extra work that you mentioned that you put in to try and improve the production process in the quarter? And what would be kind of a normal look as we went forward on this? The Bulletproof Executive 2013, Hey, George. Good morning. Good morning.

George D. Shapiro: Good morning.

George D. Shapiro: Mark if I look at the underlying margins that you've had in commercial when you had 10 six is the high in the first quarter.

George D. Shapiro: And you had relatively high at 703, seven deliveries, but this quarter you had the highest 737 deliveries and the margin was like 85% now is that just reflective of the extra work that you mentioned that you put into.

George D. Shapiro: Try and improve the production process in the quarter and what would be kind of a normal look as we went forward on this.

George D. Shapiro: Sure.

Hey, George good morning.

George D. Shapiro: Good morning.

I would say just that mean.

Mark Sachin: I would say just that. I mean, it's hard to assess and state that, you know, the fourth quarter is a kind of normalized commercial margin. We entered the quarter in a very disruptive state behind schedule. Pat talked about how we did a pause in the fourth quarter. And so there was a lot of investment to stabilize the factory in the fourth quarter, and you saw that come through in the unfavorable cumulative catch up. You know, we delivered the most deliveries of fuselages in the fourth quarter than we did in four years. So there was definitely a big cost investment to stabilize the 737 production system. And when we think about, you know, jobs behind schedule, all of the operational metrics that we had as we exited the year, we were in the best shape we've been in a long, long time here. So, I don't want to lean forward here and start talking about what the normal margins are, but they were definitely depressed as relates to the investment we made to stabilize the operations. And we did a lot of good work in the fourth quarter.

Speaker Change: It's hard to assess and state that the fourth quarter is kind of a normalized commercial margin. We entered the quarter in a very disruptive state behind schedule Pat talked about we did a pause in the fourth quarter and so there was a lot of investment to stabilized the factory in the fourth quarter and you saw that come through.

Speaker Change: Through in the unfavorable cumulative catch up.

Speaker Change: We delivered the most deliveries that.

Speaker Change: Fuselages in the fourth quarter than we did in four years. So.

Speaker Change: There was definitely a big cost investment to stabilize the 737 production system and when we think about jobs behind schedule.

Speaker Change: All of the operational metrics that we had as we exited the year we were in the best shape than we've been in a long long time here. So.

Speaker Change: I don't want to lean forward here and start talking about what the normal margins are but they were definitely depressed as it relates to the investment we made to stabilize the operations and we did a lot of good work in the fourth quarter.

Speaker Change: Anything you want to cover pet on top of that.

Mark Sachin: Anything you want to cover, Pat, on top of that? You know, I and, in addition, it's not margins, but we also um, made working capital investments to also stabilize that factory, and that put a little bit of pressure on cash, although your question wasn't about cash. It was more about the margin. But the goal here is, you know, once you have a stable factory, the financials will come with it, and that's what we're focused on. The free cash flow that you missed in the quarter certainly looks like $30 million or so was CapEx, and you enumerated a couple of other things.

Speaker Change: Yeah.

And in addition, it's not margins, but we also.

Speaker Change: Working capital investments to also stabilize that factory and that put a little bit of pressure on cash. Although your question wasn't about cash was more about the margins.

Pet: But the goal here is once you have a stable factory.

Pet: The financials will come with it and that's what we're focused on.

Speaker Change: And one quick follow up Mike.

Speaker Change: The free cash flow that you missed in the quarter I mean, certainly it looks like 30 million or so with capex.

Speaker Change: A couple of other things I would think that some of that is actually a benefit for 2024, because you won't be spending that much more on capex and what you spent this quarter.

Speaker Change: Is that a fair statement.

Speaker Change: Yeah.

That's right George.

Speaker Change: We will buy some of that back as we move into 2024 for sure right.

Speaker Change: As we think about stabilizing the operations and co investing with Boeing we did accelerate some of that capex.

Speaker Change: To stabilize the system and so as you said some of that will come back as a benefit in 2024.

Okay. Thanks very much.

Speaker Change: Yeah.

Speaker Change: Thanks George.

Speaker Change: We now have Gavin Parsons.

Speaker Change: Yes.

Gavin Parsons: Thank you.

Gavin Parsons: Yeah.

Gavin Parsons: Good morning.

Gavin Parsons: Good morning.

Gavin Parsons: Okay.

Gavin Parsons: Maybe just following up on George's question, there on the cash flow a lot of moving pieces in 'twenty three I think that's it.

Gavin Parsons: Besides the working capital the pension closeout of the MAA advances labor contract ratification.

Gavin Parsons: What are some of the other moving pieces or are there. Other one time items, we should keep an eye out for in 'twenty four or.

Gavin Parsons: 24, a relatively clean year best we can tell.

Gavin Parsons: Yeah.

Speaker Change #100: You know as you said there was.

Several one onetime items, both good and bad in 2023.

Speaker Change #100: As we think about 2024.

Speaker Change #100: We are not anticipating.

Speaker Change #100: Significant one offs.

Speaker Change #100: As we stand here today I think it's it's about.

Speaker Change #100: Just running the business we.

Speaker Change #100: We talked about some of the opportunities to to improve free cash flow.

Speaker Change #100: What are some of the tailwind we're working hard we talked about the operations, but we're also focused on indirect and overhead costs in the working capital side of things but.

Speaker Change #101: Kevin I'm not aware of any any of the sizable type items that we saw in 2023 coming back in 2024.

Kevin: Okay I appreciate it thank you.

Speaker Change #103: Thank you.

Speaker Change #104: We now have no bottleneck from Goldman Sachs you.

Goldman Sachs: You May proceed.

Goldman Sachs: Hey, good morning.

Speaker Change #106: Good morning, Pat and Mark.

Speaker Change #107: What's your latest thinking on your framework of.

Speaker Change #108: Where your free cash flow margin can go in the future, but putting any specific euro side just longer term.

Speaker Change #108: At.

Speaker Change #108: Compared to history at equivalent volumes right you used to have.

Speaker Change #108: Targeted range and then you had a targeted range for win.

Speaker Change #108: Volumes are back at certain levels is there any.

Speaker Change #108: Kind of a new way, you're thinking about that as you evaluate where pricing cost are shaking out.

Speaker Change #108: And then I'm curious also to hear you talk about how you are.

Speaker Change #108: Going through the process of renegotiating pricing, while you're costs are such a moving target right are at low volumes, where you sort of I don't even know what the <unk>.

Cost per unit is at <unk>.

Speaker Change #108: Higher volumes or double the volumes rates or how are you factoring that in as you go through these customer pricing renegotiations.

Speaker Change #108: Okay.

Speaker Change #108: Yeah.

Speaker Change #109: Let me, let me address the second one first.

Speaker Change #110: And I understand your point with the fourth quarter here. We just took some additional foreign losses, which were which will put pressure on unit cost as we move forward here, but we've been doing a lot of work as we think about the <unk> hundred 20, <unk> hundred 50 on.

Speaker Change #110: Our long term unit costs, we've worked shoulder to shoulder with our customer.

Speaker Change #110: As it relates to where we are now what the learning curves look like what what benefits, we will get from optimizing the supply chain over the next three or four years.

Speaker Change #110: We've done a deep dive internally to assess that as best we can based on what we know now.

Speaker Change #110: And that is really the information that we're using as.

Speaker Change #110: As we enter the conversations with our customers.

Speaker Change #110: And.

Speaker Change #110: That's the best way that I would describe that on the Airbus side as it relates to longer term, maybe I'll just add onto that when we think about like the $2 20 for example, a good portion of the.

Speaker Change #110: Cost reduction, which allows us to get to the right pricing level. It comes from a transfer of work.

Speaker Change #110: Any of the suppliers that we would transfer the work too this is coming out.

Speaker Change #110: Bombardier supply chain are going to Airbus suppliers, and we've jointly evaluated.

Speaker Change #110: <unk> costs in the Airbus has a significant history with those suppliers, so I feel confident.

Speaker Change #110: And that cost basis.

Speaker Change #110: We also have.

Speaker Change #110: Fairly good understanding of the.

Speaker Change #110: Cost and productivity curves for assembly, particularly in.

Speaker Change #110: In Belfast, so and Thats really nice.

Or 10% of the cost but those.

Speaker Change #110: Learning curves hold true.

Speaker Change #110: And I would just say on the 350, there's a history of the higher production so that.

Speaker Change #110: That kind of holds as a baseline that.

Speaker Change #110: We need to get back to and then there is the normal adjustment for.

Speaker Change #110: Labor and.

Speaker Change #110: Raw material price increases.

Speaker Change #111: I don't think there is.

Speaker Change #111: With these increased rates that it really creates that different.

Speaker Change #111: Cost estimating basis that we're not familiar with.

Speaker Change #111: Okay.

Speaker Change #112: That makes sense.

Speaker Change #112: And then two and then to address your.

Your first question around long term.

Speaker Change #112: I don't want to get into the prediction business, but when you think about what this business generated in the past I think youre referencing the 7% to 9% margins in <unk>.

Speaker Change #112: <unk> hundred to $600 million with the free cash flow.

Speaker Change #112: In the future.

Speaker Change #112: As we go up to the to the higher rates that will obviously help.

Speaker Change #112: From a revenue and a profitability and a cash flow standpoint.

Speaker Change #112: Sure.

I think we can get back to back to those levels. There is some headwinds as it relates to some of the inflationary pressures that we talked about before like the iam contract, but I think the single biggest.

Speaker Change #112: Item that we need to work on to help us drive back up to those cash flows because I think the business is going to drive. It is we're carrying $4 billion of debt and $350 million $325 million of cash interests to over the next couple of years.

Speaker Change #112: We need to.

Speaker Change #112: Take that positive cash flow pay down debt.

Speaker Change #112: Not only will that help our R.

Speaker Change #112: Our leverage from a balance sheet standpoint, but it'll get the cash interest drag off the books and if we can drive that interest back down to our historical measures, we can get back to.

Speaker Change #112: Similar to levels that we've had in the past.

Speaker Change #112: Okay.

Speaker Change #113: Thanks for the detail.

Speaker Change #114: Thanks Noah.

Speaker Change #114: Your next question comes from Robert Dodd with Beth could research.

Robert Dodd: Thanks, so much good morning.

Yeah.

Robert Dodd: Okay.

Robert Dodd: Pat I just wanted to follow up on a comment you made earlier that you said that spirit personnel.

Robert Dodd: Acting as if they're now part of Boeing.

Robert Dodd: Was wondering if this has any sort of impact on your relationship with Airbus in particular.

Robert Dodd: And perhaps to other customers.

Pat: I don't think so.

Pat: No.

Pat: I guess that the.

Pat: The real differences I know more people at Boeing than I do at Airbus, but I've quickly.

Pat: Come to meet quite a few of the exec.

Pat: Executive leadership through program reviews, we've been doing on the on the $2 20 and the.

The $3 50, but my rolodex isn't as.

Pat: Great.

Pat: But I.

Pat: I'd say the <unk>.

Pat: Interaction is just as positive and the transparency and the focus on driving.

Pat: Driving improvement.

Pat: Hi.

Pat: I'll do a number of you know they use Google Mitsui, Google meet and.

Pat: The feedback I get is just as directors the feedback I get from from Boeing and the working together.

Pat: Effort is almost identical I mean, everybody tries to get the.

Pat: The job done the right way I think with Boeing I just have a few more.

Pat: The tricks in my bag, just because of my familiarity with how to navigate.

Pat: Their system, but.

Pat: Treatment and the behavior and working together spirit out of.

Pat: To lose as strong in.

Pat: We just were able to get things done pretty well.

Speaker Change #116: Alright, thanks, so much Matt.

Matt: Thanks, Rob.

Speaker Change #118: Your next question comes from.

Michael: Michael Good morning.

Speaker Change #120: Turning to charities.

Michael: Hey, good morning, guys. Thanks for taking the question.

Michael: Pat lots of talk about quality the airplanes the boss.

Michael: Safety and quality are Paramount if I, just maybe not to put you on the spot, but if I look at your your proxy and I guess youre going to file it next month.

Michael: Compensation incentives it looks like only 20% is tied to quality on annual cash comp nothing tied to quality in the longer term.

Michael: It seems like everything we're talking about here cash generation revenue EBIT margin all tied to quality. I mean are you are you guys planning on changing compensation to drive some of this behavior towards more of a focus on quality.

Michael: It'll be significantly different.

Michael: And.

Michael: The.

Michael: Heaviest weighting will be on quality.

Michael: And right now really working to design it so.

Michael: So the system.

Michael: Manipulation is probably too strong a word but I want to make sure that it drives.

Michael: Right right behaviors and we can measure.

Measure true performance.

Michael: I'll just do a.

Michael: A shout out to Dan Anderson T Rowe price she throughout the idea.

Michael: You got to really look at the utility industry.

Michael: Were in their quality metrics there is a significant penalty for an escape. So we're really trying to look at.

Michael: How do we measure.

Michael: Fact reduction but also.

Michael: What if there is any type of.

Gabe.

Michael: Only one wouldn't drive much in the metric, but it really should so.

Michael: The.

Speaker Change #121: To answer your question is we're changing it fundamentally they are now making sure that what we put in place works well and drives the right kind of behavior.

Speaker Change #122: Got it outstanding that's good to hear thanks, I'll keep it one.

Speaker Change #122: Yeah.

Speaker Change #123: Thanks, Michael.

Speaker Change #124: Thank you.

Speaker Change #124: Due to time, our final <unk> cooler comes from Peter Arment.

Speaker Change #124: Kenny.

Peter J. Arment: You May proceed with your question.

Peter J. Arment: Yes, thanks Mark.

Peter J. Arment: Mark good morning.

Peter J. Arment: Pat maybe just a quick one just because it's been good morning, all I mean is there a timing when you expect to price.

Peter J. Arment: The B 21 elder up and then just Mark if you could just give a little more color on the <unk>.

Peter J. Arment: CH 50, <unk> program I know you mentioned some of the forward losses, there just what.

Peter J. Arment: Any color in terms of.

Peter J. Arment: The health of the program right now.

Pat: Why don't we switch why don't you answer the.

Mark Inchcape: I'll answer the fifty-three absolutely yeah. Thanks, Peter on the B 21.

Speaker Change #126: Should we expect in the back half of this year to.

Speaker Change #127: To complete the negotiations in regards to the initial L. Rip.

Speaker Change #127: On that program, where we're on the tail end of the development side.

Peter J. Arment: The program, which is a cost plus type arrangement and so we'll be able to report back more on that later in the year and obviously when we think about our customers.

Peter J. Arment: Our goal here is to sign up for contracts that.

Peter J. Arment: Add value to our company.

Peter J. Arment: And so that's what our focus is going to be as we negotiate that contract later in the year.

Peter J. Arment: Just maybe a comment on the CH 53 program, we disappointed Stephanie Hill, and our teammates at Lockheed Martin in 'twenty three.

We're on track to turn that around in 'twenty four and it personally consumes my time every week. So we can deliver on.

Peter J. Arment: Not only deliver on the airframes, we've committed to but also get to a higher production rate that supports the needs of the Marine Corps.

Speaker Change #128: I appreciate all the color thanks Pat.

Pat: You're welcome thank you.

Speaker Change #129: I can confirm we have no further questions I would like to complete the cohort.

Speaker Change #130: Thank you all for joining and I can confirm the spirit Aero systems fourth quarter 2023 Conference call has now concluded and you may now disconnect your lines companies in jewelry divestiture.

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