Q1 2024 Spirit AeroSystems Holdings Inc Earnings Call

[music].

Yeah.

Sure.

[music].

Candice: Good morning, ladies and gentlemen, and welcome to the Spirit AeroSystems Holdings Inc. first quarter 2024 earnings conference call. My name is Candice, and I will be your co-ordinator for today's call. All lines have been placed on mute during the presentation portion of the call, with an opportunity for question and answer at the end. If you'd like to ask a question, please press start, followed by 1 on your telephone keypad. I would now like to turn this presentation over to Ryan Avey, Senior Director of Vesta Relations and SP&A. Please proceed.

Good morning, ladies and gentlemen, and welcome to the Spirit I work just doesn't holdings, Inc. First quarter 2000, and plentiful on its conference call. My name is Candice and automobile cobalt do they check that's cool.

Candice: All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer then if you'd like to ask a question. Please press star followed by one on your telephone keypad.

Ryan Avey: I would now like to turn this presentation over to Brian <unk> Senior director of Investor Relations and SP and Bank. Please proceed.

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 Suchinski. 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. 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.

Candice: Thank you and good morning, everyone I'm Ryan Avey with me today are Spirit's, President and Chief Executive Officer, Pat Shanahan, and senior Vice President and Chief Financial Officer, Mark <unk>.

Ryan Avey: 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, including those detailed in our earnings release, and our SEC filings and 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.

Patrick M. Shanahan: In our results.

Patrick M. Shanahan: With that I would like to turn the call over to Pat.

Patrick M. Shanahan: Thank you, Ryan. And good morning, everyone.

Patrick M. Shanahan: Thank you, Brian and good morning.

Patrick M. Shanahan: Everyone.

Patrick M. Shanahan: Let me say at the outset that I am so proud of the Spirit Team and particularly proud of what we've accomplished through teamwork. I love this industry, our customers, and the people that work in it, and we set out every day to make the industrial system better while ensuring safety, quality, and compliance in the supply of our products and services. For Spirit, the primary objectives of stabilizing operations, delivering on our customer commitments, and strengthening our company financially have not changed.

Patrick M. Shanahan: Let me say at the outset I am so proud of.

Patrick M. Shanahan: The spirit team.

Patrick M. Shanahan: I'm, particularly proud of what we've accomplished through teamwork.

Patrick M. Shanahan: I love this industry our customers.

Patrick M. Shanahan: And the people that work at it.

Patrick M. Shanahan: And we set out everyday to make the industrial system.

Patrick M. Shanahan: Better, while ensuring safety quality and compliance in the supply of our products and services.

Patrick M. Shanahan: For spirit, the primary objectives of stabilizing operations.

Patrick M. Shanahan: Delivering on our customer commitments and strengthening our company financially have not changed.

Patrick M. Shanahan: We are laser focused and continue to make real progress towards these objectives. Spirit AeroSystems is a critical component of a global network of engineers, manufacturers, customers, and governments that comprise the aerospace industry. In that context, I'm going to discuss our ongoing efforts. Demand for commercial air travel remains robust and firm.

Patrick M. Shanahan: We are laser focused and continue to make real progress towards these objectives.

Patrick M. Shanahan: Spirit Aero systems is a critical component of our global network of engineers manufacturers custom.

Patrick M. Shanahan: Customers and governments that comprise the aerospace industry.

Patrick M. Shanahan: In that context, I'm going to frame our ongoing efforts.

Patrick M. Shanahan: Demand for commercial air travel remains robust and firm.

Patrick M. Shanahan: Our collective responsibility at Spirit is to match capacity and capability, short and long term. It is a responsibility that defines the company and is at the core of our commitment to our customers. So, as the industry prepares to ramp up production, we are diligently working across the industrial system to ensure we possess and demonstrate the capability to deliver on our commitment. Before moving to other topics, I would like to address talks with the Boeing Company about a possible acquisition. At the beginning of March, we responded to media speculation by confirming that we were in discussions with Boeing. Those discussions continue, and as all of you understand, I am not at liberty to comment further.

Patrick M. Shanahan: Our collective responsibility of spirit is to match capacity and.

Patrick M. Shanahan: And capability short and long term.

Patrick M. Shanahan: It is a responsibility that defines the company and is at the core of our commitment to our customers.

Patrick M. Shanahan: So as the industry prepares to ramp up production, we are diligently working across the industrial system to ensure we possess and demonstrate the capability to deliver on our commitments.

Patrick M. Shanahan: Before moving to other topics I would like to address talks with the Boeing company about a possible acquisition.

Patrick M. Shanahan: At the beginning of March we responded to media speculation by confirming that we are in discussions with Boeing.

Patrick M. Shanahan: Those discussions continue.

Patrick M. Shanahan: And as all of you understand by them.

Speaker Change: Not at Liberty to comment further.

Patrick M. Shanahan: When and if we have something to disclose, we'll make an announcement. At our last earnings call, I spoke about Spirit's rapid response in support of the FAA, NTSB, airlines, and Boeing resulting from the Alaska Air Accident. Those actions concentrated on mitigating human factors by Improving Mechanic Proficiency, Compliance, Mistake Proofing, and Observation.

Patrick M. Shanahan: When and if we have something to disclose we will make an announcement.

Patrick M. Shanahan: At our last earnings call I spoke about spirits rapid response, and supported the FAA NTSB Airlines and Boeing resulting from the Alaska Air accident.

Patrick M. Shanahan: Those actions concentrated on mitigating human factors.

Patrick M. Shanahan: By improving mechanic proficiency comply.

Patrick M. Shanahan: Compliance mistake proofing.

Patrick M. Shanahan: An observation.

Patrick M. Shanahan: Those systemic changes continue to take root as our foundational relationship with safety and quality matures. Building on that foundation of improvement. We've expanded our actions to strengthen leadership, Product Conformity, and Governance. In terms of leadership, Greg Brown has joined our team as SVP for Global Quality. Greg is an airline operator, an airline safety and quality expert, and an authority in the management of the FAA's Safety Management. He most recently was the Vice President of Technical Operations at JetBlue.

Patrick M. Shanahan: Those systemic changes continue to take root as our foundational relationship with safety and quality matures.

Patrick M. Shanahan: Building on that foundation of improvement.

Patrick M. Shanahan: We've expanded our actions to strengthen leadership.

Patrick M. Shanahan: Product conformity and governance.

Patrick M. Shanahan: In terms of leadership, Greg Brown has joined our team as SVP for global quality.

Patrick M. Shanahan: Greg as an airline operator, and airline safety and quality expert and authority in.

Patrick M. Shanahan: And the management of the Fda's safety management system.

Patrick M. Shanahan: He most recently was the vice president of technical operations at Jetblue.

Patrick M. Shanahan: Greg possesses expertise in Airbus and Boeing products having served in the industry and at Southwest Airlines for almost four decades. Because that strength and product conformity have been significant, the decision was made to fundamentally change the inspection process.

Patrick M. Shanahan: Greg possesses expertise for Airbus and Boeing products, having served in the industry.

Patrick M. Shanahan: And at southwest Airlines for almost four decades.

Patrick M. Shanahan: That's the strength in product conformity have been significant.

Patrick M. Shanahan: The decision was made to fundamentally change the inspection process.

Patrick M. Shanahan: This change aligns Spirit and Boeing efforts into a joint inspection. Partnering with Boeing, this transformative undertaking was industrialized in 34 days. Today, working shoulder-to-shoulder with a standardized 26-zone product verification process, the teams verify product conformity on the 737 each week. The process improves in tandem with quality results being fed back to the teams working in stations. Ultimately, our goal is not to streamline this operation but to move it further upstream to where the work is performed. In the interim, utilizing end-to-end digital feedback and analytics, we are accelerating the quality improvement initiated in the first quarter with critical new building blocks, process changes, and insight. We have further re-examined governance.

Patrick M. Shanahan: This change aligns spirit and Boeing efforts into a joint inspection.

Patrick M. Shanahan: Partnering with Boeing this transformative undertaking was industrialized.

Patrick M. Shanahan: And 34 days.

Patrick M. Shanahan: Today, working shoulder to shoulder with a standardized 26 owned product verification process. The teams verify product conformity on the 737.

Patrick M. Shanahan: Each week the process improves in tandem with quality results being fed back to the teams working in station.

Patrick M. Shanahan: Ultimately our goal is not to streamline this operation but to move it further upstream to where the work is performed.

Patrick M. Shanahan: In the interim utilizing end to end digital feedback in analytics, we are accelerating the quality improvements.

Patrick M. Shanahan: Initiated in the first quarter.

Patrick M. Shanahan: With critical new building blocks process changes and insight.

Patrick M. Shanahan: We have further reexamined governance.

Patrick M. Shanahan: Breakthrough performance and safety and quality will be realized and sustained because teams at the point of production own their operations. We are moving from the office to the factory floor. We're enabling integrated product teams composed of quality assurance, manufacturing engineering, factory operations, supplier management, and customers. This form of governance, which is not new to our industry, provides the requisite authorities, resources, and inspiration and motivation that unlocks discretionary efforts. This change in governance is at an early stage but has the greatest potential.

Patrick M. Shanahan: Breakthrough performance in safety and quality will be realized in sustained if teams at the point of production.

Patrick M. Shanahan: <unk> their operations.

Patrick M. Shanahan: We are moving from the office to the factory floor.

Patrick M. Shanahan: We're enabling integrated product teams composed of quality assurance Manny.

Patrick M. Shanahan: Manufacturing engineering factory operations supplier management and the customer.

Patrick M. Shanahan: This form of governance, which is not new to our industry.

Patrick M. Shanahan: <unk> a requisite authorities resources.

Patrick M. Shanahan: Inspiration and motivation that unlocks discretionary effort.

Patrick M. Shanahan: This change in governance is early stage, but has the greatest potential.

Patrick M. Shanahan: Now I will provide context on cash usage for the quarter, as Boeing mentioned on their call. They deliberately slowed 737 production below 38 per month to incorporate improvements. Quality and Safety Management System, including Reducing Traveled Work and Addressing Supplier Nonconformity The inspection process changed by Boeing, in effect, paused our ability to receive payment for completed fuselages. The implementation of the product verification required that we inspect all the fuselages stored in ship-in-place utilizing the new conformity process. This represents a total of 54 ship-in-place units that needed to flow through the newly-established process beginning March 1st. In the quarter, we produced 89 units.

Speaker Change: Now I will provide context on cash usage for the quarter.

Patrick M. Shanahan: As Boeing mentioned on their call they.

Patrick M. Shanahan: They deliberately slowed 737 production below 38 per month to.

Patrick M. Shanahan: To incorporate improvements to.

Patrick M. Shanahan: To quality and safety management systems, including reducing traveled work in addressing supplier nonconformance.

Patrick M. Shanahan: The inspection process change by Boeing in it.

Patrick M. Shanahan: Fact, paused our ability to receive payment for completed fuselages.

Patrick M. Shanahan: The implementation of the product verification required that we inspect all the fuselages stored and ship in place utilizing the new conformity process.

Patrick M. Shanahan: This represents a total of 54 ship in place units that needed to flow through the newly established process beginning March one.

Patrick M. Shanahan: In the quarter, we produced 89 units and.

Patrick M. Shanahan: Delivered 44 Units Prior to Implementing the New Process. The result was an increase of 45 fuselages to our work in process. To offset the lack of payment, but recognizing the completion of fuselages, Boeing advanced $425 million to be repaid in the third quarter as the production system returns to equilibrium. We appreciate greatly Boeing's support operationally and financially as we strengthen the industrial system. Boeing is also modifying 787 deliveries due to supply chain challenges. Mark will provide additional detail, however. 737 production rate is currently at 31 airplanes per month. The 787 delivery is approximately 25% below the original plan.

Patrick M. Shanahan: <unk> delivered 44 units prior to implementing the new process.

Patrick M. Shanahan: The result was an increase of 45 fuselages to our work in process.

Patrick M. Shanahan: To offset the lack of payment, but recognizing the completion of fuselages.

Patrick M. Shanahan: <unk> advanced spirit $425 million to be repaid in the third quarter as the production system returns to equilibrium.

Patrick M. Shanahan: We appreciate greatly boeing's support operationally and financially as we strengthen the industrial system.

Patrick M. Shanahan: Boeing has also modifying 77 deliveries due to supply chain challenges.

Patrick M. Shanahan: Mark will provide additional detail however.

Patrick M. Shanahan: The 737 production rate currently at 31 airplanes per month.

Patrick M. Shanahan: 77 deliveries of approximately 25% below original plans.

Patrick M. Shanahan: We will make near-term adjustments to our supply chain to ensure optimal levels of inventory and rate capability. We are closely coordinating with our supplier partners to mitigate the short-term disruption. Our intent is to quickly re-synchronize the industrial system while still balancing the capacity and capabilities. Snap-Back to Future Production Rating

Patrick M. Shanahan: We will make near term adjustments to our supply chain to ensure optimal levels of inventory and rate capability.

Patrick M. Shanahan: We are closely coordinating with our supplier partners to mitigate the short term disruption.

Patrick M. Shanahan: Our intent is to quickly re synchronize the industrial system, while still balancing the capacity and capability.

Patrick M. Shanahan: <unk> back to future production rate increases the.

Patrick M. Shanahan: The Spirit team is focused on driving our safety and quality efforts, synchronizing supplier-partner operations, and aligning to meet our commitments to defense customers, Airbus, and Boeing. Turning to Airbus, as we've discussed on earnings calls over the past year, we've been attempting to reach a commercial agreement in the best interest of both companies. However, these conversations have yet to result in an agreement.

Patrick M. Shanahan: The spirit team is focused on driving our safety and quality efforts synchronizing supplier partner operations.

Patrick M. Shanahan: And aligning to meet our commitments to defense customers Airbus and Boeing.

Patrick M. Shanahan: Turning to Airbus as we've discussed on earnings calls over the past year, we've been attempting to reach a commercial agreement in the best interest of both companies.

Patrick M. Shanahan: These conversations have yet to result in an agreement.

Patrick M. Shanahan: As a result of this impasse and the continued pressure on meeting the delivery targets demanded by the rapid rate of the Airbus A350 and 220 programs, we've booked significant losses this quarter, including net incremental losses for anticipated performance obligations extending beyond 2026. Strain on the Supply Chain Being Experienced by Spirit and other suppliers as both a commercial and an operational risk We have risen to the challenge thus far and will continue to work with Airbus to ensure that quality and safety remain the foremost considerations, and

Patrick M. Shanahan: As a result of this impasse in the continued pressure on meeting the delivery targets demanded by the rapid rate and the Airbus <unk> hundred 50, and $2 20 programs, we booked significant losses, this quarter, including net incremental losses for anticipated performance obligations extending beyond 2026.

Patrick M. Shanahan: The strain on the supply chain being experienced by spirit.

Patrick M. Shanahan: And other suppliers as both commercial and operational risk.

Patrick M. Shanahan: We have risen to the challenge thus far that we will continue to work with Airbus to ensure that quality and safety remain the foremost considerations.

Patrick M. Shanahan: And to close.

Patrick M. Shanahan: While it has not been the focus of my opening remarks today, I want to highlight the strong performance of the defense and aftermarket. They continue to execute day in and day out and are performing to their commitments operationally and financially. With that, I will turn the call over to Mark, who will take you through the financials before we open up the call to Q&A.

Patrick M. Shanahan: While it has not been the focus of my opening remarks today I want to highlight the strong performance of the defense aftermarket teams.

Mark: They continued to execute day in and day out.

Mark: And are performing to their commitments operationally and financially.

Patrick M. Shanahan: With that let me turn the call over to Mark who will take you through the financials before we open up the call to Q&A.

Patrick M. Shanahan: Mark.

Mark: Thank you Pat.

Mark J. Suchinski: And good morning, everyone. As Pat covered in his opening remarks, there have been a number of events that have occurred since our last earnings call. I want to discuss the financial impacts of these items before getting into the first quarter results. First, the implementation of Boeing's product verification process on the 737 program, including moving inspections and rework teams from Renton to Wichita while no longer allowing travel work. This has been a collaborative effort to enhance quality and eliminate rework but, consequently, has created delayed delivery acceptance in our factories, which has led to the buildup of undelivered units, higher levels of inventory, and contract assets, and lower cash. We are working with Boeing to mitigate the slowdown resulting from the process changes. And despite the slow start, we are seeing signs of improvement, and in the long term, we expect the benefit to be more synchronized with our customer's inspection process.

Mark: And good morning, everyone as Pat covered in his opening remarks, there have been a number of events that have occurred since our last earnings call I wanted to discuss the financial impacts of these items before getting into the first quarter results.

Mark J. Suchinski: First the implementation of Boeing's product verification process on the 737 program, including moving inspections and rework teams from rent into Wichita, while no longer allowing traveled work.

Mark J. Suchinski: This has been a collaborative effort to enhance quality and eliminate rework, but consequently has created delayed delivery acceptance in our factories, which has led to the buildup of undelivered units.

Mark J. Suchinski: Our levels of inventory and contract assets and lower cash flow.

Mark J. Suchinski: We are working with Boeing to mitigate the slowdown resulting from the process changes and despite the slow start we are seeing signs of improvement and.

Mark J. Suchinski: And in the long term expect the benefit to be more synchronized with our customer's inspection process.

Mark J. Suchinski: Over the next few quarters, we expect to have our production systems aligned and built-up units delivered. Additionally, we have incurred factory and supply chain costs that were incurred to align with the higher 737 production, which has now been delayed. Our current rate is approximately 31 aircraft per month, and we now expect to remain at the lower than planned rate throughout the rest of the year.

Mark J. Suchinski: Over the next few quarters, we expect to have our production systems aligned and built up units delivered.

Mark J. Suchinski: Additionally, we've incurred factory and supply chain costs that were incurred to align with the higher 737 production rate, which has now been delayed.

Mark J. Suchinski: Our current rate is approximately 31 aircraft per month, and we now expect to remain at the lower than planned rate throughout the rest of the year.

Mark J. Suchinski: Similarly, on the 787 program, we are now anticipating delivering approximately 55 units in 2024, down from our original plan of approximately 80. All of these items will have a negative impact on cash flow throughout the year, but I want you to know that we are strongly focused on liquidity and actions to improve our current position. Now, let me take you through the details of our first quarter financial results. So let's move to slide number two.

Mark J. Suchinski: Similarly on the 787 program. We are now anticipating delivering approximately 55 units during 2024 down from our original plan of approximately 80.

Mark J. Suchinski: All of these items will have a negative impact on cash flow throughout the year, but I want you to know that we are strongly focused on liquidity and actions to improve our current position.

Mark J. Suchinski: Revenue for the quarter was $1.7 billion, up 19% from the first quarter of 2023. The year-over-year improvement was primarily due to higher production on our commercial programs and increased defense and space revenue. Overall deliveries in the quarter decreased 11% year over year as a result of fewer deliveries recorded on the 737 program due to the reasons I described in my opening remarks. The in-process and completed 737 fuselages that have not been through the new source inspection process are recorded as contract assets and not counted towards our ship set deliveries until acceptance.

Mark J. Suchinski: Now let me take you through the details of our first quarter financial results.

Speaker Change: So let's move to slide number two.

Mark J. Suchinski: Revenue for the quarter was $1 7 billion up 19% from the first quarter of 2023.

Mark J. Suchinski: The year over year improvement was primarily due to higher production on our commercial programs and increased defense and space revenues.

Mark J. Suchinski: Overall deliveries in the quarter decreased 11% year over year as a result of fewer deliveries recorded on the 737 program due to the reasons I described in my opening remarks.

Mark J. Suchinski: The in process and completed 737 fuselages that have not been through the new source inspection process are recorded as contract assets and not counted towards our ship set deliveries until accepted.

Mark J. Suchinski: The overtime accounting revenue recognition on these units has been reflected in our quarterly financial results.

Mark J. Suchinski: The overtime accounting revenue recognition on these units has been reflected in our quarterly financial results. Now, let's turn our attention to EPS. We reported earnings per share of a negative $5.31 compared to a negative $2.68 in the first quarter of 2020, excluding certain items.

Speaker Change: Now, let's turn our attention to EPS.

Mark J. Suchinski: We reported earnings per share of a negative $5 31 compared to negative $2 68 in the first quarter of 2023.

Mark J. Suchinski: Excluding certain items.

Mark J. Suchinski: Adjusted EPS was negative $3.93 compared to negative $1.69 in the prior year. Operating margin was lower compared to the same period of 2023, largely driven by higher unfavorable changes in estimates during the first quarter of 2024. First quarter net forward losses were $495 million, and the unfavorable cumulative catch-up adjustments were $39 million. This is compared to $110 million of forward losses and $12 million of unfavorable cumulative catch-up adjustments in the first quarter of 2023.

Mark J. Suchinski: Adjusted EPS was negative $3 93, compared to negative $1 69 in the prior year.

Mark J. Suchinski: Operating margin was lower compared to the same period of 2023, largely driven by higher unfavorable changes in estimates during the first quarter of 2024.

Mark J. Suchinski: First quarter net forward losses were $495 million, an unfavorable cumulative catch up adjustments were $39 million.

Mark J. Suchinski: This is compared to $110 million afford losses, and 12 million favorable cumulative catch up adjustment in the first quarter of 2023.

Mark J. Suchinski: The current quarter 4 losses were primarily driven by the A350 and A220 programs of $281 million and $167 million, respectively. I know these are large losses, but they are really due to the inability to reach a conclusion to commercial negotiations with Airbus. As a result, we were required to adjust our assumptions and record forward losses on the A220 and A350 programs, which drove $373 million of total losses. This includes forward losses through 2025, our current accounting contract, as well as losses for anticipated performance obligations beyond 2026.

Mark J. Suchinski: The current quarter for losses were primarily driven by <unk> hundred 50, and <unk> hundred 20 programs of $281 million and $167 million respectively.

Mark J. Suchinski: I know these are large losses, but are really due to the inability to reach a conclusion to commercial negotiations with Airbus.

Mark J. Suchinski: And as a result, we were required to adjust our assumptions and record for losses on the <unk> hundred 20, and <unk> hundred 50 programs, which drove $373 million of total losses.

Mark J. Suchinski: This includes four losses through 2025, our current accounting contract as well as losses for anticipated performance obligations beyond 2026 the.

Mark J. Suchinski: The remainder of the four losses were a result of production cost growth and additional firm orders. Additionally, the 787 program drove $34 million of forward losses due to supply chain and labor cost growth to support future higher production. The unfavorable cumulative catch-up adjustments primarily related to increased 737 costs.

Mark J. Suchinski: The remainder of the forward losses were a result of production cost growth and additional firm orders.

Mark J. Suchinski: Additionally, the 77 program drove $34 million of forward losses, due to supply chain and labor cost growth to support future higher production rates.

Mark J. Suchinski: The unfavorable cumulative catch up adjustments primarily related to increased 737 cost associated with the product verification process changes, which caused delayed delivery acceptances and a significant buildup of undelivered units in Wichita.

Mark J. Suchinski: Associated with the product verification process changes, which caused delayed delivery acceptances and a significant buildup of undelivered units. Now turning to free cash. Free cash flow usage for the quarter was $444 million, compared to free cash flow usage of $69 million in the first quarter of 2023, primarily caused by disruption to the 737 production and delivery delay experienced in the period. Having a large number of unbilled 737 units built during the first quarter had a significant negative impact on our first quarter free cash flow. Once these units can be fully inspected under the new product verification process, they will be considered delivered, and we can collect the cash earned on those units.

Mark J. Suchinski: Now turning to free cash flow.

Mark J. Suchinski: Free cash flow usage for the quarter was $444 million compared to free cash flow usage of $6 9 million in the first quarter of 2023.

Mark J. Suchinski: Primarily caused by disruption to the 737 production and delivery delay experienced in the period.

Mark J. Suchinski: Having a large number of Unbilled 737 units built during the first quarter had a significant negative impact on our first quarter free cash flow.

Mark J. Suchinski: Once these units can be fully inspected under the new product verification process. They will be considered delivered and we can collect the cash earned on those units.

Mark J. Suchinski: Prior Year Free Cash Flow Reflects $180 Million Surplus Cash Payment Received Related to the Termination of the Pension Value Plan A. Now, with that, let's turn to our cash and debt balances on slide three. We ended the quarter with $352 million of cash, which reflects the unfavorable impacts of the disruption experienced on the 737 production and delivery process. We ended the quarter with $4.1 billion of debt.

Mark J. Suchinski: The prior year free cash flow reflects a $180 million surplus cash payment received related to the termination of the pension value plan a.

Mark J. Suchinski: Now with that let's turn to our cash and debt balances on slide three.

Mark J. Suchinski: We ended the quarter with $352 million of cash, which reflects the unfavorable impacts of the disruption experienced on the 737 production and delivery process.

Mark J. Suchinski: We ended the quarter with $4 $1 billion of debt.

Mark J. Suchinski: In April, we entered into an MOA with Boeing to provide cash advances totaling $425 million. These funds were used to address Spirit's high levels of inventory and contract assets, lower operational cash flows, decreased deliveries, and higher factory costs attributed to the change in the product verification process and the FAA's imposition of limitations on the Boeing increased production rate. This advance will be reflected in the second quarter financial results and will be treated as financing activity on the statement of cash. As I mentioned in my remarks, we are strongly focused on liquidity and are working on plans to improve our current position.

Mark J. Suchinski: In April we entered into an MLA with Boeing to provided cash advances totaling $425 million. These.

Mark J. Suchinski: These funds were used to address spirits high levels of inventory and contract assets lower operational cash flows decreased deliveries and higher factory costs attributed to the change in the product verification process and the faa's imposition of limitations on the Boeing increased.

Mark J. Suchinski: <unk> rates.

Mark J. Suchinski: This advance will be reflected in the second quarter financial results and will be treated as financing activity on the statement of cash flows.

Mark J. Suchinski: As I mentioned in my remarks, we are strongly focused on liquidity and are working plans to improve our current position.

Mark J. Suchinski: Next, let's discuss our quarterly segment performance, along with the commercial segment on slide four. Even with the 737 disruption impacts, commercial revenue increased compared to the same period in 2020, primarily due to higher production across most of our programs. Quarterly operating margin decreased compared to the first quarter of 2023, primarily driven by higher changes in estimates recorded in the current period. These changes in estimates included net forward losses of $494 million, which were largely driven by the change in assumptions in our conversations with Airbus and on favorable accumulative catch-up adjustments of $39 million.

Mark J. Suchinski: Next let's discuss our quarterly segment performance along with the commercial segment on slide four.

Mark J. Suchinski: Even with the 737 disruption impacts commercial revenue increased compared to the same period of 2023, primarily due to higher production across most of our programs.

Mark J. Suchinski: Operating margin decreased compared to the first quarter of 2023, primarily driven by higher changes in estimates recorded in the current period.

Mark J. Suchinski: These changes in estimates included net forward losses of $494 million, which were largely driven by the change in assumptions on our conversations with Airbus and unfavorable accumulative catch up adjustments of $39 million.

Mark J. Suchinski: In comparison, during the first quarter of 2023, the segment recorded charges of $110 million of foreloss and $11 million of Unfavorable Cumulative Catch-Up Adjustment. Next, let's turn to the defense and space segment on slide five. We are especially pleased with the performance by the defense and space teams this quarter. Revenue grew to $251 million due to higher activity on development and classified programs, as well as the Sikorsky CH-53K and FLARA programs. Operating margin of 13% in the first quarter increased compared to the same period of 2023, primarily due to higher classified program activities and strong execution by the team.

Mark J. Suchinski: In comparison.

Mark J. Suchinski: During the first quarter of 2023, the segment recorded charges of $110 million of forward losses, and $11 million of unfavorable cumulative catch up adjustments.

Mark J. Suchinski: Next let's turn to defense and space segment on slide five.

Mark J. Suchinski: We are especially pleased with the performance by the defence and space teams this quarter.

Mark J. Suchinski: Revenue grew to $251 million due to higher activity on development and classified programs as well as the Sikorsky CH 53, K and flower programs operating margin of 13% in the first quarter increased compared to the same period of 2023, primarily due to higher classified program activities.

Mark J. Suchinski: Strong execution by the team.

Mark J. Suchinski: For our aftermarket segment results, let's now turn to slide six. Aftermarket had another solid quarter with revenue of $96 million, up slightly over the prior year, primarily due to higher spare parts. Operating margins in the first quarter of 2024 decreased compared to the first quarter of 2023, primarily due to lower MRO activity during the current period. With that, we will be happy to take your questions.

Mark J. Suchinski: For our aftermarket segment results, let's now turn to slide six.

Mark J. Suchinski: Aftermarket had another solid quarter with revenue of $96 million up slightly over the prior year, primarily due to higher spare part sales.

Mark J. Suchinski: Operating margin in the first quarter of 2024 decreased compared to the first quarter of 'twenty three primarily due to lower MRO activity during the current period.

Mark J. Suchinski: With that we will be happy to take your questions.

Candice: Thank you. If you'd like to register a question, please press star followed by one on your telephone keypad, ensuring that you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing the star followed by. In the interest of time, we ask that you limit yourself to one question at this time. So our first question comes from the line. Seth Seifman of J.P. Morgan, your line is now open. Please go ahead.

Speaker Change: Thank you if you'd like to register a question. Please press star followed by one on your telephone keypad, ensuring you Amit Luckily if you'd like to withdraw your question at any time you can do some quick question Scott will look like.

Seth Michael Seifman: And the interest of time, we ask that you limit yourself to one question at this time.

Seth Michael Seifman: So our last question comes from the line of Seth.

Seth Michael Seifman: Seth Sigman of JP Morgan. Your line is now open. Please go ahead.

Seth Michael Seifman: Hey, thanks very much. And good morning, everyone. Morning. I was wondering, Pat and Mark, if you could talk about, when we think about the potential deliveries from Spirit this year, and we think about the, you know, the current production rate of 31, but the, you know, the deliveries we saw in the first quarter, should we think about the rest of the year as being, you know, kind of that 31 per month?

Seth Michael Seifman: Okay, Thanks, very much and good morning, everyone.

Speaker Change: Good morning, I was wondering.

Seth Michael Seifman: Pat and Mark.

Seth Michael Seifman: Could talk about when we think about the potential deliveries from spirit this year.

Seth Michael Seifman: And we think about the current production rate of 31, but.

Seth Michael Seifman: The deliveries that we saw in the first quarter should we think about the rest of the year as being.

Seth Michael Seifman: Kind of that 31 per month, plus I guess the difference between the 89 that were produced in the 44 that were delivered in the first quarter or will it take more time to kind of marry up.

Seth Michael Seifman: The actual deliveries that can happen.

Seth Michael Seifman: With that that sort of underlying production rate of 31 months.

Seth Michael Seifman: I guess, how should we think about that trajectory of deliveries going forward and when those deliveries meet up with the production rate, and how the excess fuselages will come out over the rest of the year, or longer as well?

Seth Michael Seifman: I guess, how should we think about that trajectory of deliveries going forward and when those deliveries meet up with the production rate and how the excess fuselages come out over the rest of the year.

Seth Michael Seifman: Or longer as well.

Patrick M. Shanahan: Yes, maybe I just think about this way. We'll be steady state at 31 aircraft per month for the balance of the year, and you might think of that ship in place as a buffer that will allow Boeing to increase prices to $38 per month when the time is appropriate based on their work with the FAA. So I kind of think of that buffer as surge capacity, based on the volume that's there positions us then to respond should the rate go higher.

Speaker Change: Yes, maybe just.

Patrick M. Shanahan: Think about this way will be steady state at 31 aircraft per month for the balance of the year and.

Patrick M. Shanahan: And you might think of that.

Patrick M. Shanahan: Ship in place as a buffer that will allow Boeing to increase to.

Patrick M. Shanahan: <unk> 38 per month.

Patrick M. Shanahan: When the time is appropriate based on their work with the FAA. So.

Patrick M. Shanahan: Think of that.

Patrick M. Shanahan: Buffer as surge capacity.

Patrick M. Shanahan: Based on the volume that's there positions US then to respond should the rate go higher.

Mark J. Suchinski: Yeah, hey, Seth, good morning. Just a little bit more color here for you.

Speaker Change: Yeah, Hey, good morning, just a little bit more color here for you.

Mark J. Suchinski: Let's just focus on spirit delivery. Okay, where will we get paid cash? I'd expect the second quarter cash deliveries to be consistent with the first quarter. As we work through the Product Process Verification, and then we'll see our deliveries increase higher than that in the third and fourth quarters, so that for the full year, the deliveries will be roughly 31 a month times 12. So we have some more ship-in-place Boeing-owned inventory that needs to go through the process verification in the second quarter, and then our finished goods will start to follow after that. So delivered units, revenue delivered, or cash delivered units, again, will be consistent with the first quarter, and then we'll see those go higher in the third and fourth quarters. Okay, very

Speaker Change: Let's just focus on spirit deliveries okay.

Mark J. Suchinski: We will get paid cash.

Mark J. Suchinski: I would expect the second quarter cash deliveries to be consistent with the first quarter.

Mark J. Suchinski: As we work through the.

Mark J. Suchinski: Product process verification.

Mark J. Suchinski: And then we will see our deliveries increase higher than that in the third and fourth quarter.

Mark J. Suchinski: So that for the full year the deliveries will be roughly 31, a month times 12. So.

Mark J. Suchinski: We have some more ship in place following owned inventory that needs to go through the process verification in the second quarter and then.

Mark J. Suchinski: Our finished goods will start to follow after that so delivered units revenue deliver cash delivered units again will be consistent with the first quarter and then we will see those go higher in the third and fourth quarter.

Seth Michael Seifman: Okay. Very good. Very good. I'll stick to one. Thanks very much. Thank you. Your next question comes from the line of Sheila Kahyaoglu from Geoffrey's, your line of...

Mark J. Suchinski: Okay.

Speaker Change: Very good I'll stick to one thanks very much.

Sheila Karin Kahyaoglu: Thank you.

Sheila Karin Kahyaoglu: Your next question comes from the line up of Sheila Kahyaoglu of Jefferies. Your line is now open; please go ahead. Good morning, Pat and Mark. Thank you for your time. I wanted to ask you about Airbus and the

Sheila Karin Kahyaoglu: Your next question comes from the line of Sheila <unk>.

Sheila Karin Kahyaoglu: Jeffrey Your line is now open. Please go ahead.

Sheila Karin Kahyaoglu: Good morning, Pablo Thank you by the time I wanted to ask about Airbus and that assumption.

Sheila Karin Kahyaoglu: Just what were the assumptions within the H 'twenty and that's great that if our pricing given part of the forward loss in the quarter was tied to that failure to reach a new pricing agreement.

Sheila Karin Kahyaoglu: And is there some thought.

Sheila Karin Kahyaoglu: Okay.

Sheila Karin Kahyaoglu: Yes.

Mark J. Suchinski: Yeah, good morning, Sheila. Hey, thanks for the question. Yes, there was embedded in our previous assumptions an assumption of a higher price, based on discussions that had ensued at the time. As we said, we haven't been able to come to a conclusion on that. So the forward loss is really represented, I think, in three components. Number one is that it's a reversal of that pricing benefit that we previously booked. It's additional orders that Airbus booked beyond 2026 on both the A350 and the A220. While we're a standalone company, we need to continue to record losses on those future performance obligations. And then there was just some normal cost growth associated with the production.

Pat: Yes, good morning, Sheila Thanks for the question.

Mark J. Suchinski: Yes, there were embedded in our previous assumptions on assumptions on.

Mark J. Suchinski: A higher price.

Mark J. Suchinski: Based on discussions that had into it at the time.

Mark J. Suchinski: As we said, we haven't been able to come to a conclusion on that so the forward loss is really represented I think in three components number one is it's a reversal of that pricing benefit that we previously booked.

Mark J. Suchinski: Additional orders.

Mark J. Suchinski: That Airbus booked beyond 2026 on both the <unk> hundred 50, and <unk> hundred 20 <unk>.

Mark J. Suchinski: So.

Mark J. Suchinski: Yeah.

Mark J. Suchinski: While we are a standalone company, we need to continue to record losses on those future performance obligations and then there were just some normal cost growth associated with the with the production but.

Sheila Karin Kahyaoglu: But in my remarks, I said specifically the reversal of those benefits and the additional losses on the future performance obligations were roughly $373 million of the total Airbus loss. Maybe just to clarify, can you set us on what sort of cash usage we should assume for the Airbus business in 2024 and 2025? What I would say is this, Sheila, if you look at our balance sheet and you look at current forward loss reserves or liabilities, I would say that Airbus is about 80 to 85% of those balances.

Mark J. Suchinski: In my remarks, I said, specifically the reversal of those benefits and the additional losses on the future performance obligations were roughly $373 million of the total Airbus losses.

Mark J. Suchinski: So I think you can do some math from there. Sounds good. Thank you. Okay, thank you.

Mark J. Suchinski: Maybe just to clarify can you level set us on what sort of Kashi situation. It seems on the Airbus business in 2025.

Mark J. Suchinski:

Mark J. Suchinski: What I would say is this Sheila if you look at our balance sheet and you look at current forward loss reserves or liabilities.

Mark J. Suchinski: I would say that Airbus is about 80% to 85% of those balances.

Mark J. Suchinski: So I think you can do some math from there.

Speaker Change: Sounds good thank you.

Speaker Change: Okay. Thank you.

Jason Michael Gursky: The next question comes from the line of Jason Gursky of Citigroup. Your line is now open; please go ahead.

Mark J. Suchinski: The next question comes from the line of Jason Gursky of Citigroup. Your line is now open. Please go ahead.

Jason Michael Gursky: Yeah.

Patrick M. Shanahan: Hey, good morning, everybody here. Hey, Pat, I was wondering if you could just spend a few minutes, you know, kind of contextualizing for all of us. The scale of the changes that the ecosystem is going through here, and this idea of, you know, reducing traveled work to zero, essentially, I'm guessing is what's being asked of you. How big of a philosophical change is this in aerospace manufacturing? And how difficult is it going to be?

Jason Michael Gursky: Hey, good morning, everybody here.

Patrick M. Shanahan: And Pat I was wondering if you could just spend.

Patrick M. Shanahan: A few minutes kind of contextualize and for all of us.

Patrick M. Shanahan: Scale of the.

Patrick M. Shanahan: Changes that.

Patrick M. Shanahan: The ecosystem is going through here.

Patrick M. Shanahan: And this idea of.

Patrick M. Shanahan: Reducing traveled work too.

Patrick M. Shanahan: Two zero essentially.

Pat: I'm guessing is what's being asked of you.

Patrick M. Shanahan: How big of a philosophical change is this in aerospace manufacturing.

Patrick M. Shanahan: And how difficult is it going to be.

Patrick M. Shanahan: to achieve what's being asked of you and, in turn, what you're asking, I suspect, your suppliers to do, big picture, giving us a really good understanding of the task at hand here and how, maybe, normal this is going to be or how unusual this is going to be. I think it would be helpful for all of us on the call. Thanks.

Patrick M. Shanahan: To achieve.

Patrick M. Shanahan: What's being asked of you and in turn what you are asking I suspect your suppliers to do.

Speaker Change: I think just did.

Patrick M. Shanahan: Big picture, giving us a really good understanding of the task at hand here and how may be normal this is going to be or how unusual. This is going to be I think would be helpful. For all of us here on the call.

Patrick M. Shanahan: Sure, Jason, let me kind of break it down into some different pieces. So when we think about the process that's been set up here in Wichita, think about it in terms of There are many points along the production system, and I'm going to characterize that as the production system for this discussion starts in Wichita and ends when we load a fuselage into the Renton facilities. There are many points along that process where inspections take place.

Speaker Change: Sure, Jason let me kind.

Patrick M. Shanahan: Kind of break it into the into some different pieces. So when we think about.

Patrick M. Shanahan: The process that's been stood up here in Wichita.

Patrick M. Shanahan: Think about it in terms of.

Patrick M. Shanahan: There are many points along the production system and I'm going to characterize that as production system for this discussion starts in Wichita.

Patrick M. Shanahan: When we <unk>.

Patrick M. Shanahan: Load at fuselage into the rental facilities. There are many points along that process, where inspections take place.

Patrick M. Shanahan: And.

Patrick M. Shanahan: This effort with Boeing has been to better align all of that activity so that we can take the feedback from those inspections and drive Root Cause Corrective Action at a very high level. That's what we're talking about.

Patrick M. Shanahan: This effort with Boeing has been to better align all of that activity.

Patrick M. Shanahan: So that we can.

Patrick M. Shanahan: Take the feedback.

Patrick M. Shanahan: From those inspections.

Patrick M. Shanahan: And drive root cause corrective action at a very top level. That's what we're talking about the details are more complicated than that in the sense that in our production system and Wichita, We conduct 9000 inspections.

Patrick M. Shanahan: The details are more complicated than that in the sense that in our production system in Wichita, we conduct 9,000 inspections. You know, when you think about the fuselage that we delivered to Boeing. It's 100 feet long and about 12, 10,000ths of an inch, or roughly the thickness of two sheets of paper.

Patrick M. Shanahan: When you think about the future.

Patrick M. Shanahan: Fuselage that we deliver to Boeing it's 100 feet long at about 12.

Patrick M. Shanahan: Feet in diameter.

Patrick M. Shanahan: The largest single integrated commercial aero structure in the world.

Patrick M. Shanahan: And we have very exacting tolerances in which we have to build that to from an engineering standpoint. So when we talk about skin quality skin quality must be within.

Patrick M. Shanahan: 10, thousands of an insurer roughly the thickness of two sheets of paper so.

Patrick M. Shanahan: So when we think about that fuselage, it's about the size of a high school basketball court. And when Boeing says they expect perfection, they're talking about nothing in excess of two inches. Sheets of Paper Thickness. We also install on the skin 100,000, about 100,000 fasteners. So there are no fasteners that can have a tolerance greater than what you could detect with your fingernail.

Patrick M. Shanahan: We think about the fuselages, it's about the size of a high school basketball court there.

Patrick M. Shanahan: And when Boeing says, we expect perfection theyre talking about nothing in excess of two <unk>.

Patrick M. Shanahan: <unk> of papers thickness.

Patrick M. Shanahan: We also install on the on the skin 100000 about 100000 fasteners. So there are no fasteners that can.

Patrick M. Shanahan: Have a tolerance greater than what you could detect with your fingernail. So what we have.

Patrick M. Shanahan: So what we've done here is to consolidate all of these inspections, where there is a final inspection in Wichita before it goes to Boeing. And when Dave Calhoun talks about "Clean Fuselages," the definition there is what we ship to them; they can load into their first position, and immediately put floors down and blankets in. And, you know, the goal is that they can immediately go to work because what we provide to them is the pacing item for all of those installations. We cannot do any type of work that would disrupt their ability to start on day one.

Speaker Change: Done here.

Patrick M. Shanahan: All of these inspections.

Patrick M. Shanahan: Where there is a final inspection and Wichita before it goes to Boeing.

Patrick M. Shanahan: And when Dave Calhoun talks about.

Patrick M. Shanahan: Clean fuselages.

Patrick M. Shanahan: The definition there is what we ship to them they can load into their first position.

Patrick M. Shanahan: And immediately put floors down blankets in.

Patrick M. Shanahan: And the.

Patrick M. Shanahan: The goal is that they can immediately go to work.

Patrick M. Shanahan: Because what we provide to them is the pacing item for all of those installations, we cannot travel any type of work that would just rubbed their ability to start on day one.

Patrick M. Shanahan: I think we've made substantial improvements in realigning all the inspections and interpreting the Engineering Specifications in an exacting manner so that the eyes of Boeing and the eyes of Spirit are the same. And we've been migrating away from humans doing this to digitally inspecting the condition of the assembly. I have a long way of saying that we've made step-function changes in how we inspect, where we inspect, and how we do that together. The benefits in the short term have been, we've seen about a 15% improvement in quality. That's just in the first quarter.

Patrick M. Shanahan: I think we've made substantial improvement and realigning all the inspections.

Patrick M. Shanahan: Interpreting the engineering specifications.

Patrick M. Shanahan: In an exacting manner, so that the eyes of Boeing in the eyes of spirit are the same and we.

Patrick M. Shanahan: Been migrating away from humans doing this to digitally inspecting.

Patrick M. Shanahan: The condition of assembly.

Patrick M. Shanahan: It's got a long way of saying that we've made step function changes in how we inspect where we inspect and how we do that together.

Patrick M. Shanahan: Benefits in the short term.

Patrick M. Shanahan: We have been we've seen about a 15% improvement in quality.

Patrick M. Shanahan: So that's just here in the first quarter.

Patrick M. Shanahan: My expectation is that by the second half of this year, we'll actually see a step function change in the level of quality. Our ultimate goal is always to drive this back to where the work is performed and eliminate the need for so many different inspection points. And I believe that will take place over time and probably faster than most people expect. Maybe, maybe I'll stop there and see if that touches on your question.

Patrick M. Shanahan: My expectation.

Speaker Change: Is that.

Patrick M. Shanahan: By the second half of this year, we'll actually see a step function change in the level of quality.

Patrick M. Shanahan: Our ultimate goal is always to drive this back in position where the work is performed.

Patrick M. Shanahan: And eliminate the need for so many different inspection points a night.

Patrick M. Shanahan: Believe that will take place over time, and probably faster than most people expect.

Patrick M. Shanahan: Maybe I'll stop there and see if that touches on your question.

Jason Michael Gursky: Yeah, no, it's great. Maybe just one quick follow-up to that. Sorry, Ryan, for doing that.

Speaker Change: Yes, no that's great.

Speaker Change: Maybe just one quick follow up to that I'm sorry, Ryan.

Jason Michael Gursky: But.

Jason Michael Gursky: Okay, so it sounds to me like, you know, processes will get better, learning will happen more quickly, and probably more inspections going on here. But does this represent kind of a whole-scale change in the way that both you and Boeing are approaching manufacturing? Or is this more of an evolutionary kind of thing?

Speaker Change: Okay. So it sounds to me like <unk>.

Jason Michael Gursky: Process will get better learning will have been more quickly probably more inspections going on here.

Jason Michael Gursky: But does this represent kind of a whole scale change in the way that both you and Boeing are approaching manufacturing or is this more kind of an evolutionary kind of thing and.

Patrick M. Shanahan: And, you know, there's a really, you know, visible path to how we're going to get all of this done in a relatively timely fashion. I'm just trying to understand how big of a change this really represents and how hard it is.

Jason Michael Gursky: Yes.

Patrick M. Shanahan: Really.

Patrick M. Shanahan: Visible path on how we're going to get all of this done in a in.

Patrick M. Shanahan: In a relatively timely fashion I'm, just trying to understand how big of a change. This really represents how hard it is going to be.

Patrick M. Shanahan: Well, I think a good portion of the hard work is done. The hard work was moving this activity 2,000 miles closer to where the work is being done, physically standing up. The operation and, to formalize the inspection process.

Speaker Change: Well I think a good portion of the hard work is done.

Patrick M. Shanahan: The hard work was moving.

Patrick M. Shanahan: This activity 2000 miles closer to where the work is being done Stan physically stand up the.

Patrick M. Shanahan: Operations.

Patrick M. Shanahan: Formalize the inspection process.

Patrick M. Shanahan: That work is behind us. We ran two fuselages through the process in March, and we did 18 in April, and in the month of May, we will exceed the... Production Rate of our, you know, internal operations, so we'll start to burn down the backlog. So I think the heavy lift has occurred. Now it's really utilizing [inaudible] improve the quality in position, which is really the foundation to get to higher rates. I mean, this all supports rate 42, rate 47, and beyond. So that part will be incremental; the big step function of realigning the two companies and where the work is done is, I think, behind us, but it's significant.

Patrick M. Shanahan: Work is behind Us and we did.

Patrick M. Shanahan: Ran two fuselages through the process in March.

Patrick M. Shanahan: At <unk> in April and in the month of May we will exceed.

Patrick M. Shanahan: The.

Patrick M. Shanahan: Production rate of our.

Patrick M. Shanahan: Internal operations, who will start to burn down the backlog. So I think the heavy lift has occurred now it's really Utah.

Patrick M. Shanahan: Utilizing.

Patrick M. Shanahan: The findings.

Patrick M. Shanahan: Rapid Lee.

Patrick M. Shanahan: Improve the quality and position, which is really the foundation to get to the higher rates. I mean, this all supports rate 42, <unk> 47 and beyond so.

Patrick M. Shanahan: That part will be incremental at the big step function of realigning the two companies and where the work is done I think is behind us, but it's significant.

Jason Michael Gursky: Perfect. Thank you very much.

Speaker Change: Perfect. Thank you very much.

Speaker Change: Okay. Thank you.

David Egon Strauss: The next question comes from the line of David Strauss to Barclays. Your line is now open, please go ahead.

Jason Michael Gursky: The next question comes from the line of David Strauss Barclays. Your line is now open. Please go ahead.

David Egon Strauss: Okay.

David Egon Strauss: Thanks. Good morning, everyone. Good morning. Good morning. Good morning.

David Egon Strauss: Thanks, Good morning, everyone.

David Egon Strauss: Good morning.

Patrick M. Shanahan: One clarification question and my main question: the 55 max units that you didn't ship in the quarter but produced, how many of those at this point have gone through this joint verification process and are ready to ship? That's my clarification question. And then my main question on Airbus and the negotiations there, Pat: Has there been any progress on the pricing side? Or did the pricing negotiations kind of get put to the side at this point? Given it sounds like you're potentially negotiating with Airbus to, you know, take back the A220 and A350 work as part of a potential acquisition from Boeing. Thanks. Sure, let me address the first question.

David Egon Strauss: One.

David Egon Strauss: One clarification question and then my main question the 55.

Patrick M. Shanahan: Max unit that you Didnt ship in the quarter, but produced how many of those at this point have gone through this joint verification process on <unk>.

Patrick M. Shanahan: Ray the ship. That's my clarification question and then my main question on an Airbus and the negotiations there Pat.

Patrick M. Shanahan: Has there been any progress on the pricing side or did the pricing negotiations kind of get put to the side at this point.

Patrick M. Shanahan: Given it sounds like youre potentially negotiating with Airbus too.

Patrick M. Shanahan: To take back the $2 28 to $3 50 work as part of a potential.

Patrick M. Shanahan: Potential acquisition with from.

Patrick M. Shanahan: From Boeing.

Patrick M. Shanahan: Sure, let me address the first question. Mid-May, we'll start processing the first. Unit from the finished goods, work in place buffer, and then we'll burn those down in terms of the advances we've been paid on by the third quarter. Maybe more broadly to the subject of Airbus. I'd just maybe start out with, we have lots of conversations with Airbus on many different levels. The majority of the conversations tend to focus on the integrity of supply, given the significant ramp-ups on the 350 and the 220. And just kind of remind everybody, the ramp-up on the 350 is an increase of 43% this year, in addition to delivering the ULR and the first freighter. On the 220 side, you know, it's an increase of 52% in one year. You can imagine there's an intensity of conversations going on there.

Speaker Change: Sure Let me address the first question.

Patrick M. Shanahan: In May we will start processing the first.

Patrick M. Shanahan: Unit.

Patrick M. Shanahan: The finished goods.

Patrick M. Shanahan: Can place buffer.

Patrick M. Shanahan: And then we will burn burn those.

Patrick M. Shanahan: Down.

Patrick M. Shanahan: In terms of the advances we've been paid on by the third quarter.

Patrick M. Shanahan: Maybe maybe more broadly to the subject of Airbus.

Patrick M. Shanahan: Just maybe start out with we have lots of conversations with Airbus.

Patrick M. Shanahan: Many different levels.

Patrick M. Shanahan: The majority of the conversations tend to focus on the.

Patrick M. Shanahan: Tegra <unk> of supply given the significant ramp ups on the $3 50, and the $2 20 in gist.

Patrick M. Shanahan: Kind of remind everybody the ramp up on the $3 50 is an increase of 43% this year.

Patrick M. Shanahan: In addition to delivering the <unk> and the first greater.

Patrick M. Shanahan: On the 220 side.

Patrick M. Shanahan: An increase of 52% in one year so.

Patrick M. Shanahan: As you can imagine there's intensity of conversations going on there.

Patrick M. Shanahan: We have never stopped talking about price. Airbus, We haven't made the progress we want, but we've never stopped talking about price. And maybe, to the third point, we've explored other economics and a different relationship in our production system. I won't, I won't, you know, go further there, but there is a path forward on all fronts, and we'll continue to partner with Airbus.

Speaker Change: We have never stopped talking about price.

Patrick M. Shanahan: Airbus.

Patrick M. Shanahan: We haven't made the progress we want but we have never stopped talking about price.

Patrick M. Shanahan: And maybe the third point.

Patrick M. Shanahan: We've explored other economics.

Patrick M. Shanahan: <unk>.

Patrick M. Shanahan: A different relationship in our in our production system and.

Patrick M. Shanahan: I won't I won't.

Patrick M. Shanahan: Go further there but.

Patrick M. Shanahan: There is a path forward on all four.

Patrick M. Shanahan: Fronts and will continue to partner with Airbus.

Speaker Change: Thanks very much.

Kenneth George Herbert: The next question comes from the line off. Ken Herbert of RBC Capital Market. Your line is now open, please go ahead. Hi Ken, your line is now open.

Speaker Change: The next question comes from the line.

Kenneth George Herbert: Ken.

Kenneth George Herbert: BC capital markets. Your line is now open. Please go ahead.

Kenneth George Herbert: Hi, Ken Your line is now open.

Kenneth George Herbert: Yeah, hi, good morning, Pat and Mark. Sorry about that.

Kenneth George Herbert: Yes, hi, good morning.

Kenneth George Herbert: Pat and Mark sorry about that.

Kenneth George Herbert: Hey, just wanted to follow up on the <unk>.

Kenneth George Herbert: Hey, just wanted to follow up on the Yeah, just wanted to follow up if I could on the Airbus side and apologize if you've already addressed this. But what would you characterize for the A220 line in particular as sort of incremental investments to support the rates that Airbus has talked about in terms of mid-teens? You know, you're looking at substantial growth this year, and I think the growth profile is pretty aggressive over the next few years.

Kenneth George Herbert: Just wanted to follow up if I could on on the Airbus side and I apologize if you already addressed this but what.

Kenneth George Herbert: Would you characterize for the <unk> hundred 20 line in particular as sort of incremental investments to support the rates that Airbus has talked about in terms of mid teens youre looking at substantial growth. This year I think the growth profile is pretty aggressive over the next few years and Airbus has been.

Kenneth George Herbert: Pretty vocal about pushing as much cost onto the supply chain as possible can.

Kenneth George Herbert: And Airbus has been pretty vocal about pushing as much cost onto the supply chain as possible. Can you talk about that investment profile? If you were to support sort of a mid-teens rate on that particular program, I guess predominantly that would be within the Belfast facility?

Kenneth George Herbert: Can you talk about that investment profile, if you were to support sort of a.

Kenneth George Herbert: Mid teens rate on that particular program I guess predominantly that would be within the Bel class facility.

Mark J. Suchinski: Yeah, good morning, Ken. As you said, and Pat just mentioned it, we're talking about a 50 plus percent increase in deliveries in 24 compared to 2023, and then when you do the projection of getting to, you know, 14 a month in the 25-26 time frame, that's essentially, you know, more than doubling from where we were last year. So there's no doubt we have capital investments that would be required in our Belfast facility from a property plant and equipment, things like autoclaves and other significant pieces of equipment. So that CapEx has to start to take place in the back half of this year and into 2025 so that we can meet those production rate ramps that our customer is asking for.

Speaker Change: Yes, good morning, Ken.

Mark J. Suchinski: As you said.

Mark J. Suchinski: Pat just mentioned it we're talking about a <unk>.

Mark J. Suchinski: <unk> 50, plus percent increase in deliveries in 24 compared to 2023, and then when you do the projection of getting too.

Mark J. Suchinski: 14, a month and the $25 26 timeframe.

Mark J. Suchinski: It's essentially more than doubling from where we were last year. So there is no doubt we have capital investments that would be required.

Mark J. Suchinski: In our in our Belfast facility.

Mark J. Suchinski: Property plant and equipment things like.

Mark J. Suchinski: Autoclave and other other significant pieces of equipment. So.

Mark J. Suchinski: That capex has to start to take place in the back half of this year and enter into 2025. So that we can meet those meet those production rate ramps that are customers asking for.

Mark J. Suchinski: Can you put a finer point on that CapEx, or maybe another way to ask it, Mark, is what staffing level are you at at the Belfast facility and how much hiring would you have to do there to support the higher rate? Yeah, so right now, you know, we're

Ken: Can you can you put a finer point on that Capex or maybe another way to ask it Mark is what staffing level are you at at the Belfast facility and how much hiring would you have to do there to support the higher rate.

Mark J. Suchinski: Yeah, so right now, you know, we're staffed to meet the current requirements. We're not overstaffed there, but we're still adding people to support the higher production as we move through the middle and into the back half of the year. So first things first, as we said, we're looking at delivering somewhere in the ballpark of 90 to 100 units this year, and we did around 60, a little more than that last year.

Speaker Change: Yes, so right now we're we're staffed to meet the current requirements.

Mark J. Suchinski: We're not overstaffed, there were were still adding people to support the higher production as we move to the middle and into the back half of the year so far.

Mark J. Suchinski: First things first year as we said.

Mark J. Suchinski: We're looking at delivering somewhere in the ballpark of 90 to 100 units this year and.

Mark J. Suchinski: And we did around 60, a little more than that last year. So while we're in the process of bringing those folks on board we call it Green labor.

Mark J. Suchinski: So we're in the process of bringing those folks on board, we call it green labor, training them, getting them on the bar lines, getting them through the learning process, but we're in the process of hiring those people to support the rate ramp here. But there's more work to be done as we think about 2025 and 2026; there will be additional CapEx required, there will be further hiring that will need to be done, and further alignment by the supply chain.

Mark J. Suchinski: Training them getting them on the bar lines getting them getting them through.

Mark J. Suchinski: Through the learning process, but we're in the process of hiring those people to support support the rate ramp here, but theres more more work to be done as we think about 25% and 26 there'll be additional capex required there will be further hiring that will be needed to be done and further alignment by the supply chain.

Speaker Change: Great. Thanks, Mark.

Speaker Change: Thanks, Ken.

Myles Alexander Walton: The next question comes from the line of Myles Walton of Wharf Research. Your line is now open, please go ahead.

Mark J. Suchinski: The next question comes from the line of Myles Walton of Wolfe Research. Your line is now open. Please go ahead.

Myles Alexander Walton: Thanks. Sorry to be so blunt, but I know Dave Gitlin took himself out of the potential running for Boeing CEO. I'm curious if you'd care to share your thoughts on your future and your interest in that potential position.

Myles Alexander Walton: Thanks, Pat sorry to be so blunt, but.

Myles Alexander Walton: I know, Dave Gitlin tick himself out of a potential running for Boeing CEO I'm curious if you'd care to share your thoughts on your future and your.

Speaker Change: Our interest in that central position.

Patrick M. Shanahan: Yeah, no, thanks for the question, Myles. I wake up every single day focused on Spirit, our teammates here, our suppliers, customers, and shareholders.

Speaker Change: Yeah, no. Thanks for the question miles wake.

Speaker Change: Wake up every single day focus on spirit.

Patrick M. Shanahan: <unk> teammates here our suppliers.

Patrick M. Shanahan: Customers and shareholders.

Speaker Change: Thats My plan.

Patrick M. Shanahan: Okay, I'm going to go for a second question. That was okay. So the audit that the FAA ran inclusive of Spirit's facilities, can you quantify how many of those sort of failed audits or failed audit points you've addressed and have submitted to Boeing as part of a master schedule of recovery against those audits?

Patrick M. Shanahan: Okay.

Speaker Change: I'm going to go for a second question if that's okay.

Patrick M. Shanahan: The audit at the FAA ran inclusive of spirits facilities can you quantify how many of those sort of failed audits or field audit points.

Patrick M. Shanahan: You've addressed it.

Patrick M. Shanahan: And have submitted to Boeing as part of a master schedule a recovery against those audits.

Patrick M. Shanahan: Um, yeah, I mean, just off the top of my head, I remember that there were 28 findings that were documented and that I have to ask our team, but I would be very confident that every item has been addressed with a mitigating action, and then our focus has really been the follow-up. So, I mean, it's one thing to have the action plans; the other is to... make sure that we're following through.

Patrick M. Shanahan: Yeah.

Patrick M. Shanahan: I mean, just right off the top of my head I.

Patrick M. Shanahan: Remember that there were 28 findings that were documented in.

Speaker Change: Got it.

Patrick M. Shanahan: They have to go ask our team but by.

Patrick M. Shanahan: I am very confident that every item has been addressed with the mitigating action.

Patrick M. Shanahan: And then our focus has really been the follow up so I mean, it's one thing to have the action plans the others.

Patrick M. Shanahan: Make sure that we're.

Patrick M. Shanahan: Following through.

Patrick M. Shanahan: These were, these were focused on things like FOD, of Releases, Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw hw Yeah, that's right.

Patrick M. Shanahan: These were these were focused on things like.

Patrick M. Shanahan: Bob.

Patrick M. Shanahan: Tagging of storage in parts of scrap materials I think that's what you're referring to.

Patrick M. Shanahan: Hmm.

Patrick M. Shanahan: Okay, we've followed through on those, but we've, our quality plan was addressed more than what they had audited, and those quality plans continue to progress and grow, you know, week by week. And as I mentioned before, with the 15% improvement, and this isn't just on the 3-7, it's across our other programs. The attention and the benefits that we're seeing. I continue to improve week over week, and I have a lot of confidence in the second half of this year.

Speaker Change: Yeah, that's right okay.

Patrick M. Shanahan: Okay.

Patrick M. Shanahan: We followed through on those.

Patrick M. Shanahan: Our quality plan was address more than than what they had audited.

Patrick M. Shanahan: Those quality plans continue to progress and grow.

Patrick M. Shanahan: By week, and as I mentioned before with the 15% improvement and this isn't just on the $3 seven months across our other programs.

Patrick M. Shanahan: The attention.

Patrick M. Shanahan: The benefits that we're seeing.

Patrick M. Shanahan: Continue to improve week over week.

Patrick M. Shanahan: Confidence in the second half of this year.

Patrick M. Shanahan: Okay.

Speaker Change: Thanks, Matt.

Speaker Change: Thank you.

George D. Shapiro: The next question comes from the line of George Shapiro. From Shapiro Research, your line is now open. Please go ahead.

Patrick M. Shanahan: The next question comes from the line of George Shapiro.

George D. Shapiro: From Shapiro Research. Your line is now open. Please go ahead.

George D. Shapiro: Okay, good morning. Thanks.

George D. Shapiro: Okay. Good morning. Thanks.

George D. Shapiro: Two questions, I guess. One for you, Pat. You know, what gets these Airbus negotiations to some resolution? I mean, by your own admission, you've been on it for three to six months at this point in time. Do you wind up having to threaten that you're not going to make the investments? Or, you know, if you could just provide some color on that. And then, Mark, one for you.

George D. Shapiro: Yes.

George D. Shapiro: Two questions I guess, one for you Pat.

George D. Shapiro: What gets these Airbus negotiations to some resolution.

George D. Shapiro: Like by your own admission had been on it for three to six months. It at this point in time.

Speaker Change: You wind up having to threaten that youre not going to make the investments are.

Speaker Change: Provide some color on that and then Mike one for you.

George D. Shapiro: The underlying margin, to me, looked like it was, like, 5.4% this quarter, down from around 9%. And you'd mentioned that there were, you know, inefficiencies caused reductions. How much of that reduction was something that was, you know, going to be fixed, and how much of it was kind of going to be embedded in the longer-term profit margins? Thanks.

George D. Shapiro: The underlying margins and he looked like it was like five 4% this quarter down from around 9% and you had mentioned that they were.

George D. Shapiro: <unk> cause reductions how much of that reduction was something that was.

George D. Shapiro: The fixed and how much of it was kind of going to be embedded in the longer term profit margins.

George D. Shapiro: Yes.

Mark J. Suchinski: Yeah, George, let me take the second question and then Pat can jump in on the Airbus side of things. You know, we talked about the disruption in the first quarter, the setting up of the process to inspect the units and, you know, the FAA audits and the NTSB investigation. All of that was very, very disruptive, right?

Speaker Change: Yeah, George Let me take the second question and then Pat can jump in on the Airbus side of things.

Mark J. Suchinski: Yeah.

Mark J. Suchinski: We talked about the disruption in the first quarter the standing up of the of the.

Mark J. Suchinski: The process to inspect the units and the <unk>.

Mark J. Suchinski: Audits and the NTSB investigation all of that was very very disruptive right and we continue.

Mark J. Suchinski: And we continue to enable the operational execution of this inspection process. And so all of that has now been embedded in our contract margins, and it's put some pressure on our profit rates and the amounts that we're booking here. You know, I think, over the long term, a lot of this is a one-time investment that we're making. It's near-term pressure from a cost standpoint, but over the long term, when we think about this and the impact it has on our profitability rates, particularly on the 737 program, we think as we get through the learning curve and implement this and take the benefits from it that Pat talked about, it won't have a It's just, it's painful right now. I think we're syncing up the system. Short-term pain right now, but we're doing the right things from a business standpoint, and this will pay off as we think about the future.

Mark J. Suchinski: To enable the operational execution of this inspection process and so all of that is now been embedded in our contract margins and it's put some pressure on our profit rates and the amounts that were booking here I think over long term a lot of this is one time investment that.

Mark J. Suchinski: We are making.

Mark J. Suchinski: It's near term pressure from a cost standpoint, but over the long term when we think about this.

Mark J. Suchinski: And the impact it has on our profitability rates, particularly on the 737 program.

Mark J. Suchinski: We think as we get through the learning and implement this and take the benefits from it that Pat talked about that.

Mark J. Suchinski: It won't have a long term negative impact on the margins it just.

Mark J. Suchinski: It's painful right now I think we're syncing up the system.

Mark J. Suchinski: Short term pain right now we're doing the right things from a business standpoint, and this will pay off as we think about the future.

Mark J. Suchinski: Thanks, Mark. Hey, George, maybe the...

Speaker Change: Yeah. Thanks Mark.

Mark J. Suchinski: George maybe to put it.

Patrick M. Shanahan: I hope that answers your question. My experience in this industry is that threats are not effective. And at the end of the day, we all have to work and partner together. But I would just say, almost to a fault, we have tried to find solutions to this situation, and our commitment has been to the integrity of supply, and I have shared this message time and time again. Financial risk ultimately manifests itself as operational risk, and the system is elastic until it's not.

Speaker Change: To answer your question.

Patrick M. Shanahan: My experience in this industry as threats.

Patrick M. Shanahan: Are not effective in the end of the day, we all have to.

Patrick M. Shanahan: Where can partner together.

Patrick M. Shanahan: I would just say.

Patrick M. Shanahan: Almost to a fault we have tried to find solutions to this situation.

Patrick M. Shanahan: And our commitment has been to the integrity of supply.

Patrick M. Shanahan: And I have shared this message time and time again.

Patrick M. Shanahan: Financial risk ultimately manifest itself.

Patrick M. Shanahan: Operational risk.

Patrick M. Shanahan: And the system is elastic until it's not.

Patrick M. Shanahan: So.

Patrick M. Shanahan: If you look at what Boeing has done, they've secured supply from us with their agreement. We need to do the same with Airbus to protect supply, and we'll continue to have the conversations that we're having, and I am confident that we will come to some type of conclusion.

Patrick M. Shanahan: If you look at what Boeing has done they've secured supply from us with their agreements.

Patrick M. Shanahan: We need to do the same with Airbus to protect supply.

Patrick M. Shanahan: We'll continue to have the conversations that we're having and.

Patrick M. Shanahan: I am confident that we will come to some type of conclusion.

George D. Shapiro: But I guess, Pat, I mean, what kind of gets it going to get to that conclusion when you've been working on it for quite a while now?

Speaker Change: But I guess, Pat I mean, what kind of gets it going to get to that conclusion, when you've been working on it for quite a while now.

Patrick M. Shanahan: Well, I think with these production rates, we're going to have to have some of those, you know, real family meetings. That's what it's going to take. But you know, me threatening not to ship them parts or the drama, all of that is not a way to ensure that their customers get their supply. But at the same time, Yeah, we have to have, you know, financially, a strong business, and Partnerships are the only way to do this, but we'll probably have a few more family meetings. Okay, thanks very much.

Pat: Well I think with these production rates, we're going to have to have some of those.

Patrick M. Shanahan: Real family meetings.

Patrick M. Shanahan: Yeah.

Patrick M. Shanahan: That's what it's going to take but.

Patrick M. Shanahan: Threatening not to ship them.

Patrick M. Shanahan: Parts or the drama all of that is not a way to ensure that their customers get their supply, but at the same time.

Patrick M. Shanahan: We have to have.

Patrick M. Shanahan: Financially.

Patrick M. Shanahan: Strong business and.

Patrick M. Shanahan: Partnerships are the only way to do this but we will probably have to have a few more family meetings.

George D. Shapiro: Okay, thanks very much and good luck. Thank you. Thanks, George. The next question comes from the line of Gavin Parsons of UBS. Your line is now open, please go ahead.

Speaker Change: Okay, Thanks, very much and good luck.

Gavin Eric Parsons: Thank you thanks George.

Gavin Eric Parsons: The next question comes from the line of Gavin Parsons of UBS. Your line is now open; please go ahead. Thanks.

Gavin Eric Parsons: The next question comes from the line of Kathryn Thompson of UBS. Your line is now open. Please go ahead.

Gavin Eric Parsons: Thanks, Good morning.

Gavin Eric Parsons: Good morning.

Gavin Eric Parsons: Pat you mentioned aligning factory costs, but retaining the ability to snap back in rates could you just give us a little more detail on what that means for the rate for your own suppliers. If that reflects any workforce changes and how much notice you would need to go above 31 per month.

Gavin Eric Parsons: Right.

Gavin Eric Parsons: Right. You know, we spent a lot of time on this subject, so I'll break it into two areas. Maybe talk about the supply chain. First, when we think of the, 37.

Gavin Eric Parsons: We spent a lot of time on this on this subject so I'll break it into two areas maybe talk about the supply chain.

Gavin Eric Parsons: First when we think of the <unk>.

Patrick M. Shanahan: There are 425 critical suppliers. When we talk about suppliers, it's not monolithic. So they're not all exactly the same.

Gavin Eric Parsons: $3 seven there are 425 critical suppliers.

Patrick M. Shanahan: Talk about suppliers is not monolithic so they're not all the same thereabout.

Patrick M. Shanahan: They're about 400 suppliers in addition to that that provide, you know, raw material forgings, fasteners, so we treat them differently, but they're a critical part of the Supply Chain. A big component of what we've been trying to do or what we've been doing is, first of all, communicating, formally and informally, and then really doing the analysis of, Where do we need to create critical buffer stock going forward? So we'll probably continue with the higher production rate. Where have we been? shortages that we need to address in terms of the supply chain limitation? Where do we need buffer stock for programs like the PAs?

Patrick M. Shanahan: 400 suppliers. In addition to that that provide raw material <unk> fasteners. So we.

Patrick M. Shanahan: Treat them differently, but they are critical part of the.

Patrick M. Shanahan: Supply chain.

Patrick M. Shanahan: Yeah.

Patrick M. Shanahan: Big component of what we've been trying to do or what we've been doing is first of all communicating.

Patrick M. Shanahan: Formally and informally.

Patrick M. Shanahan: And then really doing the analysis of.

Patrick M. Shanahan: Where do we need to create critical buffer stock going forward. So we will probably continue at the higher production rate.

Patrick M. Shanahan: Where have we had.

Patrick M. Shanahan: <unk> that we need to.

Patrick M. Shanahan: Address in terms of the supply chain.

Patrick M. Shanahan: Limitation, where do we need buffer stock for programs like like the P. Eight so theres a.

Patrick M. Shanahan: There's an analysis that goes on around the work statement so that we can snap back to the higher production rate. Then there's a set of discussions around the suppliers themselves that the buyers perform to make sure, you know, they're viable and that they can continue to produce. Now, we don't have the checkbook to support the whole supply chain, nor do we have enough warehouse space to store all of the goods that would come through. So it's a balancing act that we're performing. Now, the good news is that this isn't COVID.

Speaker Change: Say it.

Patrick M. Shanahan: Analysis that goes on around the work statement, so that we can snap back to the higher production rates.

Patrick M. Shanahan: Then there's a set of discussions around.

Patrick M. Shanahan: The suppliers themselves that the buyers perform to make sure.

Patrick M. Shanahan: Yes.

Patrick M. Shanahan: They are viable they can continue to produce now we don't have the check book.

Patrick M. Shanahan: <unk> the whole supply chain, nor do we have enough warehouse space to store all of the goods that would.

Patrick M. Shanahan: Come through so it's a balancing act that we're performing now.

Patrick M. Shanahan: Now the good news is.

Patrick M. Shanahan: This isn't COVID-19 so we're talking.

Patrick M. Shanahan: Months not years and.

Patrick M. Shanahan: So we're talking, you know, months, not years. This is a reality of our industry where we have these kinds of disruptions, and we'll roll up our sleeves and figure out a way for everybody to get through this, taking a break when we think about our internal operations. You know, what I've said to the team is that our teammates aren't 100% variable at rate. Okay. It doesn't make sense to go up and down and have people go in and out the door.

Patrick M. Shanahan: This is.

Patrick M. Shanahan: The reality of our industry, where we have these kinds of disruptions and we will roll up our sleeves and figure out a way for everybody to get get through this.

Patrick M. Shanahan: Break break when we think about.

Patrick M. Shanahan: Our internal operations.

Patrick M. Shanahan: What I've said to the team is that our teammates are 100% variable with rate okay.

Patrick M. Shanahan: It doesn't make sense to go up and down.

Patrick M. Shanahan: And have people go in and out the door.

Patrick M. Shanahan: We've invested a lot in their training, they're a critical part of our company, so we're trying to find the right balance here. So as the system recovers, we don't go through, quality issue or a training issue and repeat some of the things that hit us hard coming out of COVID, you know, we're talking about Unknown Executive, Scott Deuschle, Noah Poponak, Aaron Hunt, Patrick Shanahan, Spirit AeroSystems Holdings Inc, We'll have to make some decisions, you know, here in the next couple of weeks, which we're prepared to do.

Patrick M. Shanahan: Oh.

Patrick M. Shanahan: <unk> invested a lot in there they are training their critical part of our our companies who are trying to find the right balance here. So.

Patrick M. Shanahan: So as the system recovers.

Patrick M. Shanahan: We don't go through.

Patrick M. Shanahan: Quality issue or a training issue and repeat some of the things that hit us hard coming out of Covid.

Patrick M. Shanahan: We're talking about.

Patrick M. Shanahan: Smaller numbers.

Patrick M. Shanahan: Big numbers like we did with the shutdown of Covid, but.

Patrick M. Shanahan: It's a balance of financials, and then maintaining a bridge of talent.

Patrick M. Shanahan: We'll have to make some decisions here in the next couple of weeks, which we're prepared to do those.

Patrick M. Shanahan: Those decisions will, you know, be preceded by conversations with the union and other constituencies, but I think we've got a very solid approach to being Able to Respond Quickly as Boeing Turns Their Rates Back Up. Yeah, Gavin, I would just add, because it's a bit of a follow-up on the margin conversation here.

Patrick M. Shanahan: Those decisions will.

Patrick M. Shanahan: Be preceded by conversations.

Patrick M. Shanahan: The union other constituencies, but I think we've got a very solid approach to being able to respond quickly as Boeing turns their rates back up.

Mark J. Suchinski: Yeah, Gavin, I would just add, because it's a bit of a follow-up on the margin conversation here, as Pat just said, you know, to protect future production rates, we're going to be carrying some additional costs, right, and it's going to have a near-term impact on profitability and cash, but it's the best thing for the long term. As Pat said, this is, you know, we're going to be going up in rate; the production, the demand is there. And so we're working very hard to protect the production system while balancing our financial situation at the same time.

Gavin: Yeah, Kevin I would just add.

Mark J. Suchinski: Because it is a bit of a follow up on the margin conversation here.

Mark J. Suchinski: As Pat just said.

Mark J. Suchinski: To protect the future production rates, we're going to be carrying some additional cost right and it's going to have a near term impact of profitability and cash.

Mark J. Suchinski: But it's the best thing for the long term.

Mark J. Suchinski: As Pat said this is.

Mark J. Suchinski: We're going to be going up in rate production.

Mark J. Suchinski: The demand is there and so we're working very hard to protect the production system while balancing.

Mark J. Suchinski: Our financial situation at the same time.

Gavin Eric Parsons: Great, appreciate the detail. If I could just confirm, I heard you say 31 per month times 12, so about 370 max deliveries for the year. Yeah, we would call it, call it roughly 350 ish.

Gavin: Great I appreciate the detail if I could just confirm I heard you say 31 per month times 12, So about 370 Max deliveries for the year.

Gavin Eric Parsons: Yeah, we would call it call it roughly 350 ish at this point in time.

Speaker Change: Alright, Thank you very much.

Gavin Eric Parsons: The next question comes from Kaye Van Rammoor of TD Cowen. Your line is now open; please go ahead. Yes.

Cai von Rumohr: The next question comes from Cai von.

Gavin Eric Parsons: Mark.

Speaker Change: Cowen Your line is now open. Please go ahead.

Kaye Van Rammoor: Yes, terrific. Thank you so much. What about labor availability and uh... you know attrition? Maybe talk about Wichita because Textron also has been building and talk also about uh... when we talk to you about Ireland and the planet there and the ability to get folks to be able to surge by fifty percent.

Speaker Change: Yes terrific. Thank you so much so so pat.

Kaye Van Rammoor: What about <unk>.

Kaye Van Rammoor: Labor availability and.

Kaye Van Rammoor: Attrition, maybe talk about Wichita, because textron also has been building and talk also about.

Kaye Van Rammoor: No.

Kaye Van Rammoor: When we talk about Ireland and the plant there.

Kaye Van Rammoor: The ability to get folks to be able to search by 50%.

Patrick M. Shanahan: Peter Arment, Myles Walton, Robert Spingarn, Ryan Avey, Robert Spingarn, Kenneth Herbert, Labor scarcity is a challenge to the industry, and we look at one of the... Big, big issues. Forging's raw materials and labor come to the top of the list.

Kaye Van Rammoor: Sure.

Kaye Van Rammoor: Okay.

Patrick M. Shanahan: Labor scarcity is a challenge to the industry.

Patrick M. Shanahan: Okay what are the.

Patrick M. Shanahan: Big Big issues, forgings raw material and labor come to the top of the list.

Patrick M. Shanahan: No.

Patrick M. Shanahan: So, you know, here long term in Wichita, when it's the, This is a great part of the country for talent and skill, need to go to market differently. I mean, there's a lot of skills that we have to train for that's differently than we have done in the past. So, you said... Is your approach to hiring people going to be different than it has been in the past? It definitely will, and we have a different workforce.

Patrick M. Shanahan: Here long term.

Patrick M. Shanahan: In Wichita.

Patrick M. Shanahan: Wanted to see.

Patrick M. Shanahan: It's a great part of the country for talent and skill.

Patrick M. Shanahan: I need to go to market differently.

Patrick M. Shanahan: <unk>.

Patrick M. Shanahan: A lot of skill that we have to train four thats differently than.

Patrick M. Shanahan: We have done in the past so.

Patrick M. Shanahan: You said.

Patrick M. Shanahan: Is your approach to hiring people going to be different than it has been in the past it definitely will and we have a different workforce.

Patrick M. Shanahan: What we've found so far is that when we train them with the basics, they're just as talented and as committed as their predecessors, but I think how we recruit and how we train is an important part of getting these higher production rates. We have, you know, similar challenges in the marketplace in Northern Ireland, but I think of the world competing for the same type of labor. But labor is always a challenge. Attrition hasn't been a problem for us.

Patrick M. Shanahan: <unk>.

Patrick M. Shanahan: And so far as when we.

Patrick M. Shanahan: Train them with the basics.

Patrick M. Shanahan: Theyre just as talented as committed as their predecessors, so, but I think how we recruit and how we train is an important part of getting these higher production rates.

Patrick M. Shanahan: We.

Speaker Change: Yes, similar challenges.

Patrick M. Shanahan: In the marketplace, and Northern Ireland, but I think.

Patrick M. Shanahan: It's not as.

Patrick M. Shanahan: Industrialized when you kind of think about the.

Patrick M. Shanahan: Textron's of the world competing for the same type of labor, but.

Patrick M. Shanahan: Labor is always a challenge attrition hasn't been.

Patrick M. Shanahan: The problem for us.

Patrick M. Shanahan: And, you know, I think these production rates, it's always hard to strike the balance of when do you bring people on so that you aren't unnecessarily spending money, but at the same time, give people enough training so that they're prepared, and they can produce it at the quality that's required.

Patrick M. Shanahan: Yeah.

Patrick M. Shanahan: I think these production rates, it's always hard to strike the balance of when do you bring people on so that you.

Patrick M. Shanahan: Alright unnecessarily.

Patrick M. Shanahan: Spending.

Patrick M. Shanahan: But at the same time give people enough training so that they're prepared to that can produce at the quality that is required.

Patrick M. Shanahan: Yeah.

Kaye Van Rammoor: Terrific. Thank you so much. The next question comes from Peter Arment of Baird. Your line is now open.

Speaker Change: Terrific. Thank you so much.

Peter J. Arment: Youre welcome.

Peter J. Arment: The next question comes from Peter Arment of Beard. Your line is now open, please go ahead. Yeah, good morning, Pat and Mark.

Peter J. Arment: The next question comes from Peter Matt.

Peter J. Arment: Your line is now open. Please go ahead.

Peter J. Arment: Yes, good morning, Pat and Mark.

Peter J. Arment: Maybe I can just ask quickly on defense.

Peter J. Arment: Really good performance in the quarter and just wondering if there was any kind of one offs.

Peter J. Arment: On that margin rate at 12, eight or how sustainable that is just given given the nice performance.

Mark J. Suchinski: You know, we've historically said we target our defense programs somewhere between 12 and 13. And I think we were right in the sweet spot there. So there were no what I would consider to be significant benefits that we recorded.

Peter J. Arment: Yes, Thanks Peter.

Peter J. Arment: We've historically said, we target on our defense programs somewhere between 12 and 14%.

Peter J. Arment: And I think we were right in right in the sweet spot. There. So there were no what I would consider to be significant benefits that we recorded I think it was just really good execution on the contracts that we have the last couple of quarters. We've had some some challenges on the CH 53, K. Our team there has done a wonderful job.

Mark J. Suchinski: I think it was just really good execution on the contracts that we have. In the last couple of quarters, we've had some challenges with the CH53K. Our team there has done a wonderful job of really improving the production processes, and I think they're working very hard to please our Sikorsky customer there. So again, nothing significant, either good or bad. I think, you know, as we think about that business going forward, we expect our team to perform, and if they do, we should continue to perform at the margin targets that we've put out there.

Mark J. Suchinski: Rob.

Mark J. Suchinski: Really.

Mark J. Suchinski: Improving the production processes and I think they're working very hard to to please.

Mark J. Suchinski: Our Sikorsky customer there so again nothing significant either good or bad I think as we think about that business going forward.

Mark J. Suchinski: <unk>.

Mark J. Suchinski: We expect our team to performance. They do we should we should continue to perform to the to the margin targets that we've put out there.

Speaker Change: I appreciate the color I'll leave it at one thanks guys.

Speaker Change: Thank you Peter.

Mark J. Suchinski: Yeah.

Unknown Executive: The next question comes from Michael Sirman.

Mark J. Suchinski: The next question comes from Michael.

Unknown Executive: Molly.

Unknown Executive: Securities. Your line is now open. Please go ahead.

Unknown Executive: Hey, good morning, guys. Thanks for taking the question. Pat, maybe just a quick two-parter here.

Unknown Executive: Hey, good morning, guys. Thanks for taking my question.

Unknown Executive: Good morning, Pat maybe just.

Unknown Executive: A quick two parter here I mean, how much if you can pull up.

Unknown Executive: I mean, how much, if you can tell us, what percent of your assets in Wichita IP tooling is already owned by Boeing? And then, obviously, we throw in some of the advances; you're still repaying them on each 787. I guess I'm just trying to get a sense of if there was a transaction, you know, how much value do they already own? And then the other follow-on to that is you're making all these wholesale changes, improving the quality of the inspection process, presumably that'll improve out-year margins in cash. Why is it a good move for shareholders to potentially sell the boat?

Unknown Executive: For some of your assets in Wichita.

Unknown Executive: The tooling is already owned by Boeing and then obviously the throw in some of the advances you still recall my mom.

Unknown Executive: 77, I guess I'm, just trying to get a sense.

Unknown Executive: Once a transaction how much value they already.

Unknown Executive: And then the other.

Unknown Executive: Follow on to that.

Unknown Executive: You're making all of these wholesale changes improving inspection process quality, presumably that'll improve out year margin and cash why it's been a good move for shareholders to potentially sell the bulk.

Mark J. Suchinski: Yes, Michael, let me just kind of address your questions around assets and IP. I guess your question was specifically about Wichita. In our industry, and it's consistent with whether it's any OEM, the OEMs typically own the tooling. Associated with the production of their products. The, you know, the facilities, call it the brick and mortar, the property plant and equipment, whether it's tape laying machines, autoclaves, broochies to drill holes, that equipment is owned by Spirit, right?

Speaker Change: Yes, Michael let me just kind of address.

Mark J. Suchinski: Your questions around assets and IP.

Mark J. Suchinski: And I guess your question was specifically around Wichita.

Mark J. Suchinski: In our industry and it's it's consistent with weather.

Mark J. Suchinski: Whether it's any OEM.

Mark J. Suchinski: The Oems typically own the tooling.

Mark J. Suchinski: Associated with the production of their products.

Mark J. Suchinski: The.

Mark J. Suchinski: <unk> call it the brick and mortar the property plant and equipment whether it's.

Mark J. Suchinski: Tabling machines autoclave.

Mark J. Suchinski: Broaches too.

Mark J. Suchinski: To drill holes that equipment is owned by spirit right. So for the most part it is.

Mark J. Suchinski: So for the most part, you know, it's a fully functioning business. It's consistent, whether it's in the U.S. or overseas. You know, as it relates to intellectual property, a lot of that just depends on the contract, right? It could be joint ownership, or sole ownership, but, you know, I think that's the way I would characterize it. It's they own the tooling, and Spirit owns the rest of the assets used in the production of the products that we build for, whether it's Boeing, Airbus, Bombardier, et cetera.

Mark J. Suchinski: As a fully functioning business.

Mark J. Suchinski: It is consistent whether it's in the U S or overseas.

Mark J. Suchinski: As it relates to IP a lot of that just depends on the contract that could be joint ownership solar ownership, but.

Mark J. Suchinski: I think that's the way I would characterize it as they own the tooling and <unk> and.

Mark J. Suchinski: And spirit owns the rest of the assets used in the production of the product.

Mark J. Suchinski: The products that we built for whether it's Boeing Airbus Bombardier et cetera.

Patrick M. Shanahan: Maybe I'll just answer the broader question that you asked. You know, the value of reintegrating most of these operations can only be unlocked by the OEM. And when we think of supply chain optimization, whether it's forging raw materials, fasteners, things that are needed for the higher production rates, that's a significant amount of value they can unlock.

Speaker Change: Maybe I'll just.

Patrick M. Shanahan: So the broader question that.

Patrick M. Shanahan: Yes.

Patrick M. Shanahan: The value.

Patrick M. Shanahan: Of reintegration of close.

Patrick M. Shanahan: Most of these operations.

Patrick M. Shanahan: Can only be unlocked by the OEM.

Patrick M. Shanahan: And when we think of supply chain optimization, whether it's forging raw materials fasteners things that are needed for the higher production rates, that's a significant amount of value.

Patrick M. Shanahan: They can unlock.

Patrick M. Shanahan: Same goes for internal operations in terms of safety, quality, delivery, and cost. In the case of Spirit, whether it's the wing and the fuselage on the 220 or the fuselage of the 737, it's the largest part of the bill of material for those major programs that really represents another opportunity to drive efficiency. The kind of broader value proposition is sharpening engineering and manufacturing expertise for the future. And that's a skill that's hard to acquire, so whether you're Short Brothers or Bombardier. It can be traced back a hundred years. The depth of expertise here at Spirit in Wichita is similar, but quite often it's really only the OEM that can unlock that value.

Patrick M. Shanahan: Same goes for internal operations in terms of.

Unknown Executive: Got it. Fair. Thanks, guys.

Unknown Executive: Safety quality delivery cost.

Unknown Executive: Case of.

Unknown Executive: Spirit, but it's the the weighing of the fuselage on the $2 20, or the fuselage or the 737.

Unknown Executive: Largest part of the bill of material for those those major programs that really represents another.

Unknown Executive: Other opportunities to drive efficiency.

Unknown Executive: The kind of the broader value proposition is sharpening engineering and manufacturing expertise for the future.

Unknown Executive: That's a skill it's hard to acquire whether Youre short brothers of Bombardier.

Unknown Executive: Roots trace back 100 years.

Unknown Executive: Depth of expertise here is spirit in Wichita is similar so.

Unknown Executive: But quite often it's really only the OEM can unlock that value.

Speaker Change: Got it.

Speaker Change: Thanks Scott.

Candice: Ladies and gentlemen, this now concludes our Q&A session. I would like to thank you all for joining today's call. Have a great rest of your day. You may now disconnect your lines. Q&A session. I would like to thank you all for joining today's call. Have a great rest of your day. You may now disconnect your line.

Speaker Change: Ladies and gentlemen, this now concludes our Q&A session I would like to thank you all for joining today's call have a great day you may now disconnect your line.

Candice: [music].

Candice: Rene session I would like to thank you all for joining today's call have a great day you may now disconnect your line.