Spirit AeroSystems Reports “Substantial Doubt” Over Continuing As A Going Concern

Spirit AeroSystems, citing liquidity concerns stemming from changes to Boeing’s production processes and the strike at the aircraft manufacturer, has said that there was substantial doubt about its ability to continue operations.

Liquidity concerns

In a United States Securities and Exchange Commission (SEC) filing, the aerospace supplier, which includes providing parts for various Airbus and Boeing aircraft programs, said that there was “substantial doubt about the Company’s ability to continue as a going concern exists.”

Spirit AeroSystems highlighted continuous losses throughout 2021, 2022, 2023, and during the first nine months of 2024, with the company losing cash and having less liquidity as of September 26 than at the beginning of the year.

Photo: JHVEPhoto | Shutterstock

While Spirit AeroSystems had $823.5 million of cash and cash equivalents on December 31, 2023, that sum had dwindled to $217.6 million by September 26.

“The Company will require additional liquidity to continue its operations over the next 12 months.”

In Q3, despite its quarterly revenues climbing slightly to $1.47 million from $1.43 million, Spirit AeroSystems’ costs ballooned to $1.7 billion, resulting in an operating and net loss of $350.1 million and $476.6 million, respectively.

Following comprehensive gains, including gains on foreign currency exchanges of $37.1 million, the company’s comprehensive loss was $433.1 million. During the first nine months of the year, the aerospace supplier’s comprehensive loss was $1.4 billion.

Related

Boeing Strike Costs Spirit AeroSystems: Q3 Net Loss of $477 Million

Spirit AeroSystems said that it was on track to complete the merger with Boeing by mid-2025.

Affected by the strike

While the strike by over 33,000 machinists working at Boeing’s facilities in California, Oregon, and Washington has now ended after the International Association of Machinists and Aerospace Workers (IAM) District Lodge 751 and District W24’s members approved the contract on November 4, it will take time for Boeing to restart activities of its 737 MAX, 767, and 777 assembly lines in Washington.

According to IAM District 751, its members could return to work as soon as November 6, requiring the machinists to do so by November 12.

Spirit AeroSystems had already announced 21-day furloughs for 700 employees working on the 767 and 777 programs starting October 27 in response to the strike.

Photo: Spirit Aerosystems 

“Our liquidity has been impacted by higher levels of inventory and contract assets, lower operational cash flows due to a decrease in expected deliveries to Boeing, higher factory costs to maintain rate readiness […], Boeing no longer allowing for traveled work on the B737 fuselage to its factories, the strike by Boeing employees, and limitations on Boeing increasing production rates.”

Spirit AeroSystems added that it had been negotiating with Airbus to adjust the pricing of its work on the A220 and A350 aircraft programs in 2023 and 2024, which has resulted in the two companies’ negotiations shifting toward customer advances and other accommodations.

In addition, following the Alaska Airlines flight AS1282 mid-air door plug blowout in January, Boeing made changes to the production process of the 737 MAX in March.

As a result, the manufacturer no longer accepted 737 fuselages that required out-of-sequence assembly or incremental quality work, leading Spirit AeroSystems to amass higher levels of inventory at its facilities.

Photo: NTSB

According to the SEC filing, contract assets, representing revenues recognized but not billed, grew to $1.08 billion by September 26. The company ended 2023 with contract assets of $522.9 million.

“For the period ended September 26, 2024, the increase in contract assets reflects the net impact of more over time revenue recognition in relation to billed revenues during the period as well as the impact of changes implemented by Boeing in March 2024 to introduce a new product verification process in Wichita, KS.”

Related

FAA: Boeing Must Not Increase 737 MAX Production Rate Until Quality Issues Are Fixed

The FAA was adamant that Boeing would not produce more 737 MAX per month until it addressed the quality issues surrounding the 737 MAX program.

Working on liquidity

Thus, the company said that its leadership has developed a plan to improve liquidity in response to the developments above.

“These plans are dependent upon many factors, including, among other things, the outcomes of active discussions related to the timing or amounts of repayment for certain customer advances, the timing and expected proceeds received from certain divestitures, the expected timing and outcome of the Merger Agreement and Term Sheet announced June 30, 2024, achieving anticipated B737 deliveries, and the timing, resolution, and ultimate impact of the strike by Boeing.”

The SEC filing did not provide an update on the planned merger between Boeing and Spirit AeroSystems, with the latter company reiterating that it has received a second request for information from the Federal Trade Commission (FTC).

Photo: VDB Photos | Shutterstock

Spirit AeroSystems concluded that the merger should be consummated in mid-2025, which still depended on Airbus acquiring assets related to its aircraft programs.

On July 1, the same day that Boeing and Spirit AeroSystems announced their merger agreement, Airbus and the aerospace supplier said they signed a binding term sheet agreement, with the latter compensating the former $559 million.

Related

Airbus Outlines Next Steps In Acquisition Of Spirit AeroSystems’ Work Packages

Airbus plans to complete its acquisition of Spirit AeroSystems by 2024 as part of the deal announced in July.

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