May 2, 2018 / 12:00 PM / a year ago

Spirit Aero says supplies to Boeing should normalize by mid-year

(Reuters) - Spirit AeroSystems (SPR.N) said on Wednesday it would get back on track supplying components for Boeing’s (BA.N) 737 narrow-body aircraft by mid-2018, after struggling to meet record demand from its top customer this year.

Wichita, Kansas-based Spirit makes some 70 percent of the structure of the 737, the world’s most-sold commercial plane, but has faced disruptions this year in its own supply chain as parts makers scrambled to meet soaring demand.

The company’s remarks should go some way in easing concerns that Boeing might face problems in delivering on record orders during a period of booming air travel.

As Boeing ramps up production, Spirit has put more people to work with its suppliers, deploying what it called “SWAT teams” at more than a dozen suppliers to tackle manufacturing disruptions. Spirit also plans to increase hiring this year.

The additional spending to address production problems led Spirit on Wednesday to report a lower-than-expected profit for the first three months of the year.

“We expect to see overtime decline and a reduction in surge resources (by mid-year),” Spirit CEO Tom Gentile said, indicating it would help the company get back on schedule to supply 737 parts.

Still, Gentile warned higher freight expenses and other costs would leak into the quarter ending June.

Boeing is already evaluating options for further increases in production of its medium-haul 737 jet, while Airbus (AIR.PA) — Spirit’s second biggest customer — has plans to make more single-aisle A320-family aircraft.

Along with first-quarter results, Spirit also announced a $650 million deal to buy European peer Asco Industries NV to boost sales to Airbus.

Spirit shares rose nearly 4 percent on Wednesday morning after the company also unveiled a $725 million stock buyback plan that followed a 20 percent dividend increase announced last week.

“The acceleration of the buyback, increase in dividend, strategic M&A transaction and generally confident tone sends all the right signals for the medium-to-long term,” Berenberg analyst Ross Law said.

Since Spirit spun off from Boeing in 2005, it has gone from being a Boeing factory to making parts for Airbus, Bombardier Inc (BBDb.TO), Textron Inc’s (TXT.N) Bell Helicopter and Lockheed Martin Corp’s (LMT.N) Sikorsky.

Spirit’s first-quarter profit fell 12 percent to $125.4 million or $1.10 per share, missing analysts’ average estimate of $1.35, according to Thomson Reuters I/B/E/S.

Revenue rose about 3 percent to $1.74 billion.

Additional reporting by Rachit Vats in Bengaluru; Editing by Saumyadeb Chakrabarty and Sai Sachin Ravikumar

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