* Second-quarter results to be reported at later date
* Oklahoma operations seen as earnings drag
* Another big charge expected for Q2
* Shares down 5 pct
Aug 6 Spirit AeroSystems Holdings, a
supplier of parts to Boeing Co and Airbus, on
Tuesday said it plans to sell its Oklahoma operations and
delayed its quarterly earnings report.
The company, which is looking to drive down expenses after
past stumbles with cost overruns on airplane programs, said it
expects to record a big charge to second quarter earnings, which
it had been due to report on Tuesday. Its shares fell nearly 3
Spun off from Boeing in 2005, Spirit makes critical parts
for popular planes such as the Boeing 737 and Airbus A320 as
well as wing parts for Bombardier and Gulfstream
business jets. The company's sales are benefiting from
rising commercial aircraft production, and Spirit added second
quarter sales rose 13 percent to $1.52 billion.
Cost overruns have hurt profitability in recent years.
Spirit said it expects to take a pretax charge of $350 million
to $400 million against second-quarter results related to
anticipated cost increases from 2014 to 2021 in Gulfstream
business jet programs.
The Oklahoma operations in Tulsa and McAlester slated for
divestiture employ 3,000 workers, nearly 20 percent of Spirit's
total workforce of about 16,000. The facilities handle wing
design for the Gulfstream G280 and G650 business jets and
development of wing parts for the Boeing 737, 777 and 787.
Reuters reported on July 26 that British aerospace and car
parts maker GKN Plc was interested in buying a Spirit
wing factory in Tulsa, citing three people familiar with the
matter. A British newspaper also reported at the
time that GKN was looking to purchase the whole of Spirit.
During a conference call on Tuesday, company executives said
they expected to talk with a number of potential buyers of the
Oklahoma unit but declined to comment on whether Spirit had
received any indications of interest.
The Oklahoma operations have been the source of much of the
cost overruns that have resulted in charges for Spirit in recent
years, according to analysts.
"If they were successful in divesting that facility, a lot
of the write-off exposure would in fact go away," said Michael
Callahan, vice president of equity research at Topeka Capital
The proposed sale of the Oklahoma operations comes as Larry
Lawson, a former Lockheed Martin executive named Spirit
chief executive in March, reviews the company's operations. Late
last month, Spirit announced it was laying off about 360 workers
in Kansas and Oklahoma to cut costs, the first layoffs since the
company went public.
The delayed second-quarter results and the expected charge
may indicate that Spirit's operational challenges are not behind
it, analysts said. In postponing its quarterly report, Spirit
said auditors had not finished their review.
"With a new CEO, optimism had been growing that Spirit
really was a turnaround story this time," RBC Capital Markets
analyst Robert Stallard said in a note to clients. He said the
news of the earnings delay and expected charge "are likely to
again test investors' patience and willingness to keep believing
that this is the last time Spirit will do this."
Selling the Oklahoma operations may not be easy, analysts
"It would be kind of difficult to find a buyer who's really
willing to really put up a significant price because (the unit
is) operating at a pretty significant loss and is somewhat of an
unknown liability as far as how far the cost overruns might
reach," said Callahan.
Callahan said he felt a sale of the entire company was
unlikely, as Boeing, which accounts for roughly 80 percent of
Spirit AeroSystems sales, would likely need to support such a
On Monday, the Society of Professional Engineering Employees
in Aerospace (SPEEA) union sent a letter to Spirit's board
expressing concern that outsourcing and layoffs were hurting
work quality and productivity. The letter said union contract
provisions were being reinterpreted in ways not explained.
"We are concerned that management is steering the company
into a death spiral," the letter said.
In response to the union letter, Spirit said on Tuesday it
had previously explained reasons for the layoffs and had nothing
else to add.
Shares of Spirit were down 2.8 percent, or 73 cents, at
$25.06 in afternoon trading on Tuesday.