Shares of Spirit AeroSystems Holdings Inc. plunged 4.5% in premarket trading on Wednesday after the aerospace manufacturer reported significantly larger losses than expected and lower revenues. The company blamed these poor results on a quality issue pertaining to components used in Boeing’s 737 planes. In Q4 2021, the net losses increased to $281.2 million, equating to $2.68 per share, compared to a loss of $52.8 million ($0.51 per share) in the same period of the previous year. Apart from extraordinary items, the adjusted per-share loss of $1.69 exceeded the FactSet loss consensus of $0.29 by a considerable amount. Revenues also increased by 21.8% to reach $1.43 billion but fell short of analysts’ expectations of $1.49 billion.
Spirit AeroSystems, which produces fuselage, propulsion, and wing systems for defense and commercial aircraft, is the largest supplier of Boeing, which accounted for almost 80% of its 2020 revenue. The company is also responsible for manufacturing 70% of the 737 MAX’s structure. Boeing’s production rates for the 737 MAX, however, have taken a significant hit due to the global grounding of the aircraft following two fatal crashes in 2018 and 2019. As a result, Spirit AeroSystems has experienced reduced demand for its structures and components, thereby affecting its financial performance.
Spirit AeroSystems CEO Tom Gentile recognized that the company faced several challenges throughout the fourth quarter. He stated that one of the primary issues was a quality problem with mechanical components sourced for Boeing’s 737 planes. Gentile elaborated that the issue was identified during the evaluation of fasteners integrated into the aircraft’s joint lower wing, which is part of the load-carrying structure connecting the wings with the rest of the aircraft body. The problem stemmed from a discrepancy in fastener spacing, which subsequently affected the component’s performance. Consequently, Spirit AeroSystems had to address these flawed components, leading to a direct impact on its quarterly results.
Addressing shareholder concerns, Gentile reassured that the company has introduced new standard procedures to prevent similar quality issues from reoccurring. He stressed that Spirit AeroSystems is committed to investing in advanced manufacturing technologies to improve the quality of components and minimize the likelihood of defects.
In addition to the quality issue of the 737 components, Spirit AeroSystems has faced increased production costs and supply chain disruptions due to the COVID-19 pandemic. The outbreak led to the suspension of production activities at several facilities, including those responsible for manufacturing the fuselage, which significantly impacted the company’s finances. The temporary closure of these facilities caused unexpected operational costs, reduced output, and ultimately affected the company’s performance in the fourth quarter of 2021.
To address these challenges, Spirit AeroSystems has implemented several cost-saving measures, such as reducing its global workforce, deferring planned capital expenditures, and freezing salary increases for employees. Furthermore, the company has entered into strategic partnerships and joint ventures to diversify its revenue streams and offset the decline in demand for its systems and components.
Despite these setbacks, Spirit AeroSystems remains optimistic about its future prospects. The company anticipates a steady increase in commercial airplane production and the eventual recovery of global air travel demand. It also expects stronger demand for its defense and space products, fueled by growing military spending and the continuous expansion of the commercial space industry.
In conclusion, Spirit AeroSystems reported larger-than-expected losses and lower revenues in Q4 2021, primarily due to a quality issue with components used in Boeing’s 737 planes. However, the company has introduced new procedures to tackle such issues in the future and is focused on diversifying its revenue streams to mitigate the impact of reduced demand for its components. As the global air travel industry recovers and commercial airplane production picks up, Spirit AeroSystems’ future prospects seem to be on a steady upward trajectory.
