Spirit Puts B787 Delays into Perspective

Implications: Spirit AeroSystems is the key supplier and integrator on the B787. The Boeing program revolves around the Wichita, KS company. Spirit's 3Q07 results beat analysts' expectations with 2008 guidance even ahead of expectations. No talk of two-year delays here or anywhere else reputable.

Analysis: Spirit AeroSystems will ship 45 Boeing 787 shipsets (primarily cockpit and forward-fuselage) to Boeing in 2008 despite the OEM's adjusting the first two years of the program by pushing back first flight and then increasing subsequent build rates. Crisis? What crisis?

Until the program is back on track following a planned 1Q08 first flight followed by a less pressured eight-month flight-test program during which the FAA will no longer be required to intervene at the same level as was previously arranged, Spirit will take an earnings hit of about $2.2 million per delivery (Boeing doesn't get paid until it delivers the finished product to the customer), compensated for by higher-than-planned 2009 deliveries and the start of the B787 ramp-up leading to full production of seven airplanes per month by January 2010.

"For now, Spirit's risks related to the 787 seem contained," according to a couple of investment analysts monitoring the program. Since Spirit and the B787 remain inseparable, this view holds far more weight than the near-hysterical cries of others on the far distant media sidelines.

One crucial supply-chain difference between the Airbus and Boeing delays: all Airbus widebody programs have been pushed to the right, repeatedly. They're not ring-fenced as Boeing has done with the B787, in that Airbus can't recover the time (or money) lost and as a result its supply chains have had to bite the bullet.

In many cases in Europe this has been a galling experience, several major-name suppliers are deeply disillusioned with Airbus having seen their revenue streams and profit margins eroded to zero while there is enough suspicion about Airbus-parent executives at EADS and insider share dealings to prompt legal investigations in France -- and enriching yourself while impoverishing your supply chain isn't exactly great business practise.

Equally, there is no pot of gold for Airbus suppliers if the A380's design and manufacturing problems are eventually overcome and if the slow-selling A350 does make it into production, whereas with Spirit AeroSystems there is a 710-airplane firm-order backlog on the B787, equivalent to about $1.58 billion in future Spirit business.

Yet Spirit AeroSystems is not content with this substantial chunk of new work and continues to be the front-runner to take over management of the former Airbus UK plant at Filton in the UK, a strategy which if successful would make Spirit central to Airbus' future carbon-composite widebody plans too.

Crisis? What crisis?