Boeing supplier Spirit AeroSystems’ cash and inventory woes mount

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The manufacturer of the fuselage for Boeing’s 737 Max said it is burning through cash, as tighter quality controls at its main customer led Spirit AeroSystems to delay deliveries.

Spirit said it and Boeing were inspecting Max fuselages at Spirit’s factory after a door panel blew out of a 737 Max flown by Alaska Airlines in January.

That change has caused fuselages to accumulate in the factory in Wichita, Kansas, and resulted in Spirit using $416mn in cash for operations during the first three months of 2024, compared with $46mn in the year-ago quarter. The company’s net loss widened to $617mn in its first quarter.

Spirit chief executive Pat Shanahan on Tuesday called the increased inspections in Wichita “a significant accomplishment” the group’s believe would improve quality and “benefit the entire production system” between Boeing and Spirit.

But the adjustments have also heaped financial and operational pressure on Spirit, with Shanahan noting “the inspection process changed by Boeing in effect paused our ability to receive payment for completed fuselages”.

The company said its “ability to align factory costs . . . and to react to sudden changes in production rates will have a material impact on results of operations and cash flows throughout 2024”.

Spirit said executives had “developed plans to pursue various options to improve liquidity as needed and expects these plans will sufficiently improve the company’s liquidity needs”, without giving further details. Spirit had $352mn in cash at the end of the first quarter, compared with $824mn a year ago.

Spirit, like Boeing, has been under regulatory scrutiny since the Alaska Airlines incident. A preliminary report by the National Transportation Safety Board found that four bolts meant to secure the panel to the aircraft were missing, and an audit of Boeing and Spirit by the US Federal Aviation Administration found “multiple instances” where the companies failed to meet manufacturing and quality control requirements.

Once an arm of Boeing, Spirit AeroSystems was spun off by its parent two decades ago. Boeing is in talks to reacquire the supplier as it seeks to assert more control over operational quality, but Shanahan declined to comment on Tuesday beyond saying the talks are continuing.

Boeing’s chief financial officer, Brian West, told investors last month Boeing and Spirit must first agree on pricing, financing and how to divest the work Spirit does for others, such as its rival Airbus.

Airbus has also presented problems for Spirit. The supplier booked so-called forward losses totalling $448mn on the parts it builds for the European aerospace group’s A350 and A220 programmes. The two companies have struggled for a year to reach an agreement on pricing.

“The death throes of Spirit are hard to watch,” said Rob Stallard, an analyst at Vertical Research Partners. “Ultimately we don’t expect Spirit to be a public company for that much longer.”

Spirit declined to offer guidance for fiscal 2024, but said it expects to build about 31 737 Max fuselages each month for the rest of the year. That is below the 38 per month that Boeing had targeted before the door panel blowout.

Spirit expects to report a forward loss of $50mn to $60mn in the second quarter on the fuselage and wing components it makes for the Boeing’s 787 Dreamliner. The company “received indications” that Boeing would increase its production rate of the wide-body jet at a slower rate. Sprit now plans to deliver 55 units for the year, rather than 80.

The FAA said on Monday that it had opened its second investigation into Boeing this year after the company found employees had falsified inspection records on some 787s.

Spirit shares were down 1.7 per cent during lunchtime trading on Tuesday in New York, while Boeing’s stock was 0.7 per cent lower.

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