Spirit AeroSystems (NYSE:SPR)

Spirit AeroSystems (NYSE:SPR) | Products/Business Segments

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Introduction



Spirit AeroSystems is one of the largest independent non-OEM (original equipment manufacturer) aircraft parts designers and manufacturers of commercial aerostructures in the world, based on annual revenues, as well as the largest independent supplier of aerostructures to Boeing. In addition, Spirit is one of the largest independent suppliers of aerostructures to Airbus. Boeing and Airbus are the two largest aircraft OEMs in the world. Aerostructures are structural components such as fuselages, propulsion systems and wing systems for commercial and military aircraft. Spirit AeroSystems is headquartered in Wichita, Kansas and incorporated in the state of Delaware.

Spirit AeroSystems commenced operations on June 17, 2005 through the acquisition of Boeing's operations in Wichita, Kansas; Tulsa, Oklahoma and McAlester, Oklahoma by an investor group led by Onex Partners LP and Onex Corporation. Although Spirit began operations as a stand-alone company in 2005, its predecessor, Boeing's commercial aerostructures manufacturing operations in Wichita, had 75 years of operating history and expertise in the commercial and military aerostructures industry. In April 2006, Spirit became a supplier to Airbus through its acquisition of the aerostructures division of BAE Systems (BAE Aerostructures).

Spirit manufactures aerostructures for every Boeing commercial aircraft currently in production, including the majority of the airframe content for the Boeing B737, the most popular major commercial aircraft in history. As a result of the company's unique capabilities both in process design and composite materials, Spirit was awarded a contract that makes it the largest aerostructures content supplier on the Boeing B787, Boeing's next generation twin aisle aircraft. In addition, Spirit is one of the largest content suppliers of wing systems for the Airbus A320 family, a significant supplier for the Airbus A380 and the Airbus A350 XWB (Xtra Wide-Body). Sales related to the commercial aircraft market, some of which may be used in military applications, represented approximately 99% of Spirit's net revenues for the twelve-month period ended December 31, 2015.

In addition to providing aerostructures for commercial aircraft, Spirit AeroSystems designs, engineers and manufactures structural components for military aircraft. Spirit AeroSystems has been awarded a significant amount of work for the Boeing 737-based P-8A Poseidon, the 737-based C-40 Clipper, and the 767-based KC-46A Tanker. The P-8A, C-40 and KC-46A are commercial aircraft modified for military use. Other military programs for which Spirit AeroSystems provides products are the E-6B Mercury/Tacamo (legacy), the development of the Sikorsky CH-53K King Stallion, and various other programs.

Spirit's core manufacturing competencies include:
• composites design and manufacturing processes
• leading mechanized and automated assembly and fastening techniques
• large-scale skin fabrication using both metallic and composite materials
• chemical etching and metal bonding expertise
• monolithic structures technology
• precision metal forming producing complex contoured shapes in sheet metal and extruded aluminum.

Since Spirit's incorporation, the company has expanded its customer base to include Sikorsky, Rolls-Royce, Bombardier, Mitsubishi Aircraft Corporation, Bell Helicopter, Southwest Airlines, United Airlines and American Airlines. The company has its headquarters in Wichita, Kansas, with manufacturing facilities in Tulsa and McAlester, Oklahoma; Prestwick, Scotland; Wichita and Chanute, Kansas; Kinston, North Carolina; Saint-Nazaire, France; and Subang, Malaysia.

Spirit AeroSystems operates in three principal segments:

Fuselage Systems
Propulsion Systems
Wing Systems.


The following table highlights Spirit AeroSystems' sales from 2013 to 2015 by segment:
Spirit AeroSystems Segment Sales



A description of the business of each of the company's segments is set forth below.


Fuselage Systems

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The Fuselage Systems segment includes development, production and marketing of forward, mid and rear fuselage sections and systems, primarily to aircraft OEMs, as well as related spares and MRO. The Fuselage Systems segment manufactures products at facilities in Wichita, Kansas; Kinston, North Carolina; and Saint-Nazaire, France.

The following data summarizes the major commercial (including derivatives, regional and announced business jets) programs that Spirit's Fuselage Systems segment currently has under long-term contract by product and aircraft platform:

Forward Fuselage (forward section of fuselage which houses flight deck, passenger cabin and cargo area).
Used on: B737, B747, B767, B777, B787.

Other Fuselage Sections - Mid-section and other sections of the fuselage and certain other structural components, including floor beams.
Used on: B737, B747, B777, A350 XWB.

     Financial results for Spirit's Fuselage Systems segment were as follows:
Performance of Spirit AeroSystems' principal lines of business

Fuselage Systems segment net revenues for the twelve months ended December 31, 2015 were $3,447.0 million, an increase of $92.1 million, or 3%, compared to the same period in the prior year. The increase in net revenues was primarily due to higher production deliveries on the A350 XWB and B737 programs and higher non-recurring net revenues on several Boeing programs, partially offset by lower net revenues recognized on the B787 program, lower non-recurring revenues recognized on the A350 XWB program and resolution of historical non-conformance claims, which was treated as contra-revenue. Fuselage Systems segment operating margins were 18% for the twelve months ended December 31, 2015, compared to 17% for the same period in the prior year, with the increase primarily driven by favorable labor and material cost performance on mature programs, including a favorable impact of fixed overhead absorption as a result of higher production rates.s


Propulsion Systems

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The Propulsion Systems segment includes development, production and marketing of struts/pylons, nacelles (including thrust reversers) and related engine structural components primarily to aircraft or engine OEMs, as well as related spares and MRO services. The Propulsion Systems segment manufactures products at facilities in Wichita and Chanute, Kansas.

The following data summarizes the major commercial (including derivatives, regional and announced business jets) programs that Spirit's Propulsion Systems segment currently has under long-term contract by product and aircraft platform:

Nacelles (aerodynamic structure surrounding engines) - including thrust reversers. Used on: B737, B747, B767, B777, Rolls-Royce BR725 Engine (for Gulfstream G650).

Struts/Pylons (structure that connects engine to the wing). Used on: B737, B747, B767, B777, B787, Mitsubishi Regional Jet (MRJ), Bombardier CSeries.

     Financial results for Spirit's Propulsion Systems segment were as follows:
Performance of Spirit AeroSystems' principal lines of business

Propulsion Systems segment net revenues for the twelve months ended December 31, 2015 were $1,750.7 million, an increase of $13.5 million, or 1%, compared to the same period in the prior year. The increase in net revenues was primarily due to higher production deliveries on the B737 and BR725 programs, partially offset by lower non-recurring net revenues and lower Global Customer Support and Services sales. Propulsion Systems segment operating margins were 22% for the twelve months ended December 31, 2015, compared to 20% for the same period in the prior year, primarily driven by favorable labor and material cost performance on mature programs, including a favorable impact of fixed overhead absorption as a result of higher production rates.


Wing Systems

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The Wing Systems segment includes development, production and marketing of wings and wing components (including flight control surfaces) and other miscellaneous structural parts primarily to aircraft OEMs, as well as related spares and MRO services. These activities take place at the company's facilities in Tulsa and McAlester, Oklahoma; Kinston, North Carolina; Prestwick, Scotland; and Subang, Malaysia.

The following data summarizes the major commercial (including derivatives, regional and announced business jets) programs that Spirit's Wing Systems segment currently has under long-term contract by product and aircraft platform:

Flight Control Surfaces (flaps and slats).
Used on: B737, B777, A320 family.

Wing Structures - Wing framework which consists mainly of spars, ribs, fixed leading edge, stringers, trailing edges and flap track beams.
Used on: B737, B747, B767, B777, B787, A320 family, A330, A350 XWB, A380.

     Financial results for Spirit's Wing Systems segment were as follows:
Performance of Spirit AeroSystems' principal lines of business

Wing Systems segment net revenues for the twelve months ended December 31, 2015 were $1,437.7 million, a decrease of $258.2 million, or 15%, compared to the same period in the prior year. The decrease in net revenues was primarily due to the divestiture of the G280 and G650 wing work packages in December 2014, lower net revenues on the A320 program primarily due to unfavorable foreign currency exchange rate fluctuations and lower net revenues on the B787 and B777 programs, partially offset by higher production deliveries on the A350 XWB program and sales of wing kits to Triumph under the supply agreement entered into in connection with the divestiture of the G280 and G650 wing work packages in December 2014. Wing Systems segment operating margins were 12% for the twelve months ended December 31, 2015, compared to 14% for the same period in the prior year.




Other Product Information/Aftermarket

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Military Equipment


In addition to providing aerostructures for commercial aircraft, Spirit AeroSystems also designs, engineers and manufactures structural components for military aircraft. The company has been awarded a significant amount of work for Boeing's P-8, C40 and KC-46 Tanker. The Boeing P-8 Poseidon, C-40 and KC-46 Pegasus are commercial aircraft modified for military use. Other military programs include the development of the Sikorsky CH-53K King Stallion and Bell Helicopter V280 tilt-rotor, and various other programs.

Low Observables (radar absorbent and translucent materials)
Used on: Various.

Rotorcraft - Forward cockpit and cabin
Used on: Sikorsky CH-53K Development Program.

Rotorcraft - Fuselage.
Used on: Bell Helicopter V280 Development Program.

Other Military - Fabrication, bonding, assembly, testing, tooling, processing, engineering analysis, and training.
Used on: Various.



Global Customer Support & Services


Spirit AeroSystems continues to broaden its base for aftermarket support of the products it designs and builds. The company has global reach with sales offices in Singapore, Ireland, China, the U.K. and the U.S. The Spirit catalog has thousands of both new and serviceable parts that are offered directly to the marketplace by virtue of having obtained parts manufacturing approvals from the FAA. Spirit AeroSystems' repair stations in Wichita, Kansas and Prestwick, Scotland have FAA and European Aviation Safety Agency (EASA) certifications. In addition, Spirit has a joint venture MRO repair station in Jinjiang, China, Taikoo Spirit AeroSystems Composite Company, Ltd., which holds Civil Aviation Administration of China certification and FAA and EASA approval.

The following data summarizes the company's aftermarket products and services:

Spares:
Platforms Supported:
B737 Classic, B737NG, B747, B757, B767, B777, Rolls-Royce BR725, A320, A330, A340, A380.

Maintenance, Repair and Overhaul
Certified repair stations that provide complete on-site nacelle repair and overhaul; maintains global partnerships to support MRO services.
Platforms Supported: B737, B747, B767, B777, B787, and Rolls-Royce BR725.

Rotable Assets
Maintain a pool of rotable assets for exchange and/or lease.
Platforms Supported: B737, B747, B767, B777.

Rotable Assets
Maintains a pool of rotable assets for exchange and/or lease.
Platforms Supported: Multiple.

Company Information

Revenues ('15): $6,644M -2.3%

R&D ('15): $28M -5.1%

Net Profit ('15): $35M +119.8%

CAPEX ('15): $360M +63.5%

Spirit AeroSystems - Tier I

Products News Subsidiaries Acquisitions Competitors Customers R&D Spending 5-Year Financials

Aerospace Sector:

   

Aerostructures

Products:


Commercial and military fixed-wing aircraft fuselages; Rotorcraft fuselages, forward cockpit and cabins; Nacelles (including thrust reversers); Struts/pylons; Wing structures; Flight control surfaces (flaps and slats); Radar absorbent and translucent materials; Fabrication; Bonding; Assembly; Testing; Tooling; Processing; Engineering analysis; Spares; Maintenance, Repair and Overhaul (MRO) Services; Rotable Assets.

Major DoD Defense Programs:


| C-40 | CH-53K | E-6B (legacy) | KC-46A | P-8A Poseidon |

Commercial Programs:


| Airbus: A320/A320neo Series, A330, A350 XWB, A380 |
| Boeing: 737NG, 737 MAX, 747-8, 767, 777, 787 | Gulfstream: G280, G650 (legacy) |
| Bombardier: CSeries | Beechcraft: 800 Series (legacy) | Mitsubishi: MRJ |

Sales 2011-2015 Net Income 2011-2015 R&D Spending 2011-2015 # Employees 2011-2015

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