By Karl Sinclair
Feb. 10, 2025, © Leeham News: Spirit Aerosystems (SPR) of Wichita (KS) filed an 8-K report with the Securities and Exchange Commission today with a troubling statement in its Investor Presentation:
“Due to Spirit’s cash flow and liquidity position, management expects to make a going concern disclosure in its 2024 Form 10-K. The Company anticipates that it will conclude in its 2024 From 10-K that there is substantial doubt about its ability to continue as a going concern.”
Going concern is an accounting term indicating that a corporation has serious doubts about its ability to continue operations for the next year.
Given Spirit’s important position as a Tier 1 supplier for Airbus and Boeing, this is a troubling development for both OEMs. But it’s not unexpected. Airbus and Boeing have been propping up Spirit for years with hundreds of millions of dollars in advance payments or loans. Without them, Spirit probably would have filed for bankruptcy long before now.
Preliminary Results
Spirit published these results, detailing them as preliminary and unaudited. The reason was revealed to be discussions with lenders concerning its senior secured term loan B credit facility.
All metrics, except net cash from operations and free cash flow (marginal increases of $22m and $49m, respectively), went in the wrong direction.
Net revenues were down, cost of sales increased, gross profit went into the red by $704m (year-over-year), cash decreased, and total debt increased.
Heavily tied to operations at Boeing, it was no surprise that Spirit would suffer due to the 53-day work stoppage, primarily in 4Q2024.
Source: Spirit 8K, Feb. 10, 2025.
Year-over-year, Airbus deliveries increased in every program, with the lowest totals in the A330 (+1) and the A350 (+5) programs. Narrowbody shipments increased by 30% in the A220 program and 13% in the A320 family. Total deliveries increased by 14%.
Airbus has planned increases to the A220 (14/mo) and A320 family (75/mo) by 2026 and 2027, respectively. This translates to 42/qtr and 225/qtr, up from 26 and 181 in 4Q2024.
Every Boeing program showed a decrease, with the exception of the 787 Dreamliner, which has its Final Assembly Line (FAL) in non-union Charleston (SC). Total Boeing deliveries dropped by 18% in 2024.
Spirit wants to amend its credit agreement to remove the requirement that the audited financials be accompanied by an unqualified audit opinion regarding its status as a going concern solely for FY2024. Lenders who agree will receive a 25bps fee.
In 2024, Spirit booked a $401m forward loss charge related to the 787, A220, and A350 programs. In 2024, both Airbus and Boeing agreed to provide Spirit with financing of $107m and $350m, respectively. At year-end, $37 m and $150m of that remained undrawn.
FCF usage is expected to be $700m through 1H2024.
Tariff impacts on Spirit, Airbus, and Boeing
Source: Spirit FY 2024 Investor Presentation.
Aboard Air Force One on Sunday, as he traveled from Florida to New Orleans to watch the Super Bowl, President Donald Trump announced his intention to levy 25% tariffs on aluminum and steel imports from Canada and Mexico.
Canadian Industry Minister François-Philippe Champagne responded in a social media post that “Canadian steel and aluminum support key industries in the US, from defence to shipbuilding and auto.”
This also includes the commercial aviation industry.
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There is an old adage in the aviation industry, that says that an aircraft is not sold until the check clears and the customer has taken possession of the plane.
One must ask the obvious question: How do tariffs affect Spirit and its two biggest customers?
As things stand, Spirit is the corporation responsible for paying for any tariff increases related to raw materials coming in from Canada and Mexico. However, Spirit’s exposure is unclear.
In the Boeing 2024 earnings call, officials detailed how Spirit’s production and quality improved since the Alaska Airlines door-plug blowout on Jan. 5, 2024. Once a deal closes, both Airbus and Boeing will be on the hook for any cost increases.
Spirit already has to pay Airbus $559m to take over its portion of the operation. Do tariffs further devalue the assets, and are there provisions in the contract for that?
There is also the possibility that the brakes will be pumped a little. At the same time, negotiations take place with the Trump regime to garner a carve-out due to “national security implications.”
Customers avoid tariffs
During the first Trump administration, Delta Air Lines refused to incur the costs of tariffs levied on Airbus products. Airbus had to absorb the tariffs on its aircraft delivered to US customers. Any tariffs now would have to be absorbed by Airbus and Boeing. Any tariffs Spirit pays before its dismembers and parts are merged into Airbus and Boeing may either be passed on to its customers or “eaten” by Spirit, given its circumstances and near-bankrupt condition. This will be a matter of discussion between the three companies.
Airbus and Boeing contracts with customers contain cost escalation clauses, but LNA doesn’t know how tariff tax treatments are factored in. We presume that after the first Trump Administration imposed tariffs, this possibility is now included in subsequent contracts and mostly likely excluded from customer liabilities.
Boeing contracts are also understood to include caps on price increases.
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