Live. Good to go? All right. Thanks everyone, for coming in for our last Aerospace and Defense Fireside Chat of our 2023 conference with Spirit AeroSystems. We have Mark, Spirit's CFO here today. Pleased to have you here. Turn it over to you for, forward-looking statement disclaimers and whatever you'd like to kick it off with. All right. Well, thank you, David, for having us here. Let me just quickly start off with just some business here, Safe Harbor Statement. I just need to remind everyone that any projections or goals we have may include in today's discussions are likely to involve any risks, which are detailed in our news release and our SEC filings. With that, you know, just a couple of quick comments I would make as it relates to, you know, Spirit and our industry. You know, over the last several years, it's obviously been fairly challenging. We started off with the MAX grounding, rolled into COVID in 2020, and that had obviously a significant impact on air travel and the impact on airlines and our major customers. We roll into 2022, where things start to feel like they're firming up. We're getting on the backside of COVID. Travel is starting to really come back. We see the Russia-Ukraine conflict and the impact it had on energy costs and fuel. We see the macroeconomic environment, you know, with inflation, wage pressures, hit in 2022. Obviously for us, 2022 was not the year that we had expected coming into it. I would just say, as we look forward here in 2023 as it relates to our business, aerospace and defense, you know, we feel good where we're at. There is strong demand for travel. We've seen China open up, which should have a positive impact on the twin-aisle airplanes. Airlines, there is a huge demand for airplanes. They want the newer, more fuel-efficient, lower maintenance cost airplanes. So, you know, we're entering a phase here of, you know, real positiveness over the next several years with very, very strong demand for airplanes. We're in a situation now where, you know, we collectively from the OEMs all the way down to the supply chain, you know, we've got to work on execution. It's an execution play right now to hit these production rates. We've talked some more about some of the challenges around, you know, labor, supply chain. At the end of the day, we really feel good about the industry of where we're at today and where we think the industry is going over the next several years. Okay. Terrific. Thank you. You've identified, you know, the structural cost opportunity you have from... You know, you've laid out a couple of things: operations, supply chain, infrastructure, overhead. What is that opportunity, and how does that build upon the structural cost takeouts you've already done over the course of the last couple of years? Well, over the last couple of years with the MAX grounding and then COVID, you know, we were forced to right-size the business. In 2019, our revenues were $8 billion. In 2020, due to the impacts of COVID, we dropped to $3.4 billion. It was a 60% drop in an industry that is very capital-intensive. We had to take some very tough actions to protect the business from a long-term standpoint. As you said, you know, we reduced our workforce by over 8,000 employees. We cut back in a variety of areas to just get through the challenging time there. We had to hit the capital markets to make sure that we had the appropriate amount of liquidity. Really, David, what's happened over the last couple of years, it's a little bit of start and stop, right? You know, where we thought production would be in 2021 and then even 2022 from an OE standpoint didn't end up being where we had expected. You know, setting aside, you know, the factory, which we have to continue to invest in and hire the people to meet the production rates, I think to a certain degree, you know, when we talk about overhead, indirect people, we started to bring people in anticipation of those higher production rates in 2021 and particularly 2022, which really hasn't come through, right? I think to a certain degree, you know, the announcement that we had around the cost optimization program, we've established a specific team led by one of my finance leaders, which is evaluating all aspects of the business. The one item that we did highlight on our earnings call in February is elimination of 1,000 overhead positions. That's gonna come through by eliminating open positions, attrition, and, you know, some performance that, you know, we probably didn't address as we expected to go up in rate. I think, you know, these actions will all come to fruition between now and the end of the year when we think about the full year benefits for the elimination of this should be a permanent structural benefit that we have, that we maintain as we move into 2024 and 2025. Even as we go up in rates, it's a layer that we'll remove. Some of it is spans and layers. It's organizational changes. There's some consolidation focus that we have in our, in our UK operations. You know, we're attacking that, you know, in a manner that I would say is something we have to do based on our current financial performance and where our balance sheet is. It's a bit of a challenge because we're also now focusing on production rate increases here in 2023, with the expectation production rates will continue to climb in 2024 and 2025. I know some people it's, "Well, how can you cut and grow?" I think, you know, we have to thread that needle. There are certain portions of our business and the labor side we have to attack. It'll, the benefits will come on fairly quickly as it relates to that. There are a variety of other project, as you said, in those 3 buckets. We've got over 300 projects identified with owners. Some of them is eliminating facility redundancies, closing leases. We just entered into an agreement where when we think about our non-inventory purchasing, a plan to consolidate that across the globe to get buying power, you know, as opposed to each site going off and doing their own buy. Very focused on the cost side, the overhead indirect side, while continuing to do the right things to improve productivity, efficiency in the factory. We have to do all of that while supporting our customers and meeting the production rates in front of us. Okay. I wanted to move to MAX, not surprisingly. Can you just help us square the, you know, the 420, you know, relative to where, I wouldn't say peers, but most industries come out? Mm-hmm. You seem like a optimistic outlier. What is your 420 base? Is that Boeing skyline? Is that your best guess? Is the 420 just simply 31 a month for first 6-8 months of the year, then 38 a month for a couple of months, + 20 that you built but didn't deliver? Mm-hmm. Lot there, but I think that's number 1 issue everyone's struggling with. No, completely understand. It's the number one question that we get, the biggest topic of conversation. What I will tell you is this, you know, we're almost into March, and you think about our business, it's capital intensive, long lead. To prepare for production rates, you have to hire your workers, you have to order your raw material to support those rates. From a contractual standpoint, between us and Boeing, it's about a six to seven-month lead time where they tell us, "We need you to go to higher rates." That gives us enough time to bring in the pipeline of people. We train them, we get them certified, we place our raw material orders. As it relates to, you know, what we've said is, you know, we've taken the position to be fairly transparent with you all, our investors, about the fact that we have purchase orders in place. The demand is being driven by our customer. That's what they want, is what we consider to be our cash deliveries, the 420, as you said. It's roughly 31 a month for the first half of the year, 38 for the last half, which averages out to around 35 cash deliveries per month in 2023, with roughly 20 units that we didn't deliver in 2022 that will spill over into 2023. The other thing I would say is it's a bit complicated, right? I think pre-COVID, it wasn't. We produced, it rolled off our line, we shipped directly to Boeing's production line. Boeing produced and delivered. Today, we produce, and we get paid based on what Boeing wants us to do. Boeing has 250 airplanes that are stored, so they're delivering out of storage, they're delivering out of their new production. The units that we produce, they go into at our site, into ship- in- place. We build to a contractual build plan. It's ship- in- place. It goes across the street. That's one mode of communication between us and Boeing. Boeing has a second mode of communication that says, "Hey, set aside those ship- in- places. I wanna pull these units." These two are completely disconnected. They pull those units to feed their production line, and then those are new builds that they build and deliver to customers like they do with the stored aircraft. It's not a direct streamlined 1+1+1=3, right? There's many moving parts here that go into this situation, and I really can't talk about our peers and where they are. I can tell you that, you know, we've now put ourselves out there, that if we don't deliver 420, it's not because of Boeing, it's because we didn't execute. Just to be clear, you have, I mean, in normal times, you have a skyline schedule from Boeing. Right. You build to that schedule. We're now back to the point where I don't feel like you've had much of a schedule for a while. It's kind of been like, "Well, we think we need this," but now you have a skyline schedule. What you communicate to us is what the skyline schedule shows that you're contractually obligated to deliver. That's right. there's no like, "Well, we think it will be this. No. This is We're- For you, this is what the skyline shows, that's what you're contractually obligated to deliver. Boeing is very, very focused on us hitting our delivery points. Okay. Hopefully that clears it up for everyone. On 787, I got a bunch more on MAX, but the more kind of... Oh, well, I guess before, what do you see as the biggest risk in terms of your break from 31 to 38 in hitting that? You know, we said this on our earnings call. Our new workforce is not as proficient as it was pre-COVID. We had very experienced mechanics, long-term employees. When COVID hit, you know, we were also upon a lot of the baby boomers moving out of our workforce, and we lost a lot of what I would call skilled mechanics in 2020 and 2021. Some of it was voluntary retirements, et cetera. Really, the challenge that we had is the aggressive rate ramp from 21 to 31 in the middle of 2022. I would say that some of this is on us. We probably fell a little bit behind from a hiring standpoint. We've also learned that the new workforce is definitely less proficient than the old workforce. It's gonna take a longer period of time to get them down the learning curve. We got hit with a lot of part shortages. You're dealing with, in the middle of the year, more part shortages than expected, a less seasoned workforce. That put us in a position of being really not stable in our workforce, which drove us then to fall behind schedule and then add more people in the back half of 2022. We talk about, you know, having 42 a month rate heads to only produce and deliver 31. Really what we're trying to do here is to hire ahead, knowing that our workforce is less proficient as they were before, getting more time on their barrel lines, earning their hours in anticipation of the rates that are in front of us, and also dealing with the levels of attrition that we haven't seen in the past. Really, those workers that we brought in the fourth quarter, we complemented that with contractors and higher overtime. Those people are getting more proficient now, right? We just had a big job fair in Wichita two weeks ago. A 1,000 people showed up. We made 700 offers. We're continuing to build that pipeline to better prepare us. It's taking longer to hire them, it's taking longer to train them, and we have to build that into the equation. We're making a bit of an investment right now, and it had a negative impact on cost and cash, right? When we think about our performance on the financial side and the challenges that were a result of us not being staffed correctly when we went from 21 to 31, we think this is the smart investment, and it'll help drive stability in our factory at 31 and will give us a much better chance to hit 38 a month. I'm feeling a lot more comfortable as it relates to our labor and the pipeline that we have. When we talk about, you know, what are going to be the biggest challenges, I won't say labor is not. I would say that it's a lower risk than before. We feel pretty comfortable about where our workforce is right now. It's less about being able to hire people. It's more about just getting them more proficient doing the jobs. The challenge we have will continue to be the choppiness from a supply chain standpoint. I would say that it's not a broad problem across the supply chain, but what we're seeing is these one-off situations where that one supplier can really have a huge negative impact on the production system. So we've invested a lot of time and effort over the last six months from a visibility and a metric standpoint of color coding it and tracking our red, yellow, and green suppliers, having supplier development out in the factory, working on dual sourcing a backstop in our factory. I would just say that the number one challenge continues to be around the supply chain. A lot less about labor, a less about the raw material. At the end of the day, I think the supply chain is getting better. Today, it's better than it was a quarter ago. It's better than two quarters ago. I think there'll continue to be some level of choppiness over the next couple of quarters, but they're starting to heal up and get more stable just like we are in Boeing and Airbus. You know, that's the challenge we have in front of us here. We're obviously, you know, have more inventory than we would like at this point in time, but we're tuning those suppliers up to bring the parts in to try to get ahead of things. We're building some strategic buffers to make sure that we protect on critical components, you know, high impact parts in the factory to better prepare for the 38. It's a complicated business. I mean, we build fuselages. They have 25,000 parts. It takes 4 months to build 1 and one part can shut you down. We're doing all the things that are necessary to be as proactive as we can to prepare for that next rate break. The truth is our whole industry was at a higher rate at one point in time. I think to a certain degree, you get lulled a little bit. When we're at 52, 31's easy. Our business isn't easy. It's complicated. I think the workforce has changed a lot pre-COVID to where we are now. I think there's a lot more effort and planning that takes place as it relates to the production rate increases. I can tell you that Boeing and Airbus are spending a lot of time with their suppliers making sure. They're willing to take on more inventory, carry more working capital because you know, their focus is we got to run everybody hard. You know, the weakest link could shut us down, so we've got to try to get the entire supply chain from top to bottom prepared for these rate increases because the demand is there. On 787, are you producing new barrels delivering to Boeing today? I mean, based on what we know, Boeing is not delivering new off the line in Charleston right now. Mm-hmm. They seem to say it's your issue, not their issue. Are you delivering new barrels? Kind of what is the challenge on 787? I guess on the new side without thinking about what you have to fix, you know, what's been produced that needs to be fixed. Yeah. I would just say this, David, you know, we communicated to our customer our delivery plan last year, it was 20. We had updated our investors through our earnings calls and said it was 20, we delivered 20. We've told everybody that we expect to deliver between 40 and 45 787s this year. What I would tell you is our factory is producing, and we expect to deliver 8 units in the first quarter, and we're on track to deliver 8 units in the first quarter. We're at a little bit lower rate. As we get into the second, third, and fourth quarter, the rates will go higher, ultimately getting to 5 a month so that, you know, we can meet the 40 to 45. you know, I think if you think about the situation and we're gonna deliver off our production line 8 units, and slightly higher in the second, third, and fourth quarter, you know, we're on track to meet the 40-45 deliveries. Was there a new discovery on the 787 that you've had to modify the production process or was there not? No, there was no new discoveries. I would tell you that, you know, in August, when the FAA approved Boeing to restart deliveries, you know, we knew what the production changes were to meet the quality/engineering requirements. That hasn't changed since August. What has changed for us is the... You know, when you change the build process, you know, around the cargo door in the front, you make estimates before you actually... So we had to put the engineering changes in place. We had to put the build process changes. The MEs were involved in it. So we started building new barrels post-August, and we produced four or five in the back half of 2022. Mm-hmm. You make estimates around the number of hours it's going to take, the process changes that you put in place. Part of our forward loss that we took in the fourth quarter is as we started to build these units, right? The time it's taking us from a mechanic, from a build process, is taking us longer than we previously had estimated. It's almost no different than developing a new airplane. You build a new airplane, you build the production process. Right now, the number of hours per unit to build those units are higher than we expected, right? As we incorporated the changes in the build process. In the back half of last year and right now, there are no new changes or no new fixes that are requiring us to change the build process or add more labor to go do that. All the fixes were in place. We identified all the issues. We were ready for those issues. Once Boeing said, "Hey, The FAA approved the deliveries. You go restart production, and this is what we need you guys to deliver." That's what we delivered on. Again, you know, I don't I'm not in the business of, you know, having a public spat with our customer. I mean, Boeing is a very important customer to us. Airbus is a very important customer to us. We are gonna be very, very focused on building what they need and building them to the best quality, and that's what our goals are here in 2023. Thank you. Your contracts on MAX and 787, I mean, you've talked about inflationary pressures. I mean, you don't have any sort of escalation that you can pass any of this on to your... I mean, Boeing has escalation clauses with its customers that pass along inflationary. You do not have in your 787 contract. I mean, obviously, you have the break on 787 where you can get better pricing. I mean, you don't have escalation clauses to cover you for inflation on 87 or MAX specifically. What I would tell you is there are provisions in all of our customer agreements that have some level of inflationary protection. Our smaller customers, the provisions are more favorable to Spirit. Our bigger customers tend to be more favored towards them. Mm-hmm. There are provisions and protections in there that have terms in there that talk about inflation at certain rates, what portion Spirit would have to absorb versus what could be passed on to the customers. We haven't gotten very specific about what those benefits are. We haven't quantified them. I can tell you that in our current contracts today, based on where inflation was in 2022, there has been some things that have been triggered with some of our customers. We're, you know, over the course of 2023, incorporating those over time. Some of them start at the middle of the year, some may start at the middle of the year. It's not gonna save the day for us, obviously. There is some benefits, but, you know, our real focus at this point in time is to execute and meet our cost commitments. You know, when we have those types of conditions and we can take advantage of them, we do. But you're right, it's a challenging environment really for everybody below Boeing and Airbus. They do get inflation protection from the airlines. This industry, historically, suppliers are locked into Firm- Fixed- Price contracts for some period of time or, you know, participate in some kind of cost challenge situation because production rates are going up. But I do think, you know, when we think about 2022, the macroeconomic environment where we're at, I think there is a... There's a certain degree of the supply base really looking at this and saying, "Hey, we need to be healthy too." You know, if there's inflationary protection that you're getting from the airlines, in the inflation situation we're in with higher labor costs and energy costs, I think I've talked to a lot of folks in our industry, and I think we're all concerned about that. I think, you know, it's a dialogue that has to take place, you know, with the big OEMs on where they're at from a financial health standpoint. You know, I'd leave it at that. Okay. Your forward loss balance on 87, A350, A220, it's around $700 million. Mm-hmm. It actually burned down a lot last year. Mm-hmm. You know, you obviously took additional forward losses. Mm-hmm. How does that burn off over the next, you know, without additional forward loss. Mm-hmm. provisions? I mean, is this kind of $200 million? Obviously, it depends on rates, all this. Mm-hmm. I mean, is it a $200 million drag a year for the next several years as you burn that balance down? Well, specifically on 787, that accounting contract, ends in, call it the second quarter of 2026. The forward losses will burn down on 787 between now and, call it, May of 2026. Mm-hmm. On the A220 program, those forward losses will be burnt off by the end of 2025. You've got that another 3 years. Then on A350, that also will burn off between now and 2025. On A350, it's more, more weighted towards 2023 and 2024 and less so in 2025. We've got a few more years, 2 or 3 more years. So, you know, it's not like the forward loss balance will be 100% of that will be a cash consumer in 2023. It will be spread out over the next, call it, 2 and a half, 3 years. Obviously, a forward loss program, you know, we've been dealing with 787 for quite some time. It's been reflected in our historical cash flows. That will obviously, be a headwind to our cash flow in 2023, 2024, and 2025. Gotcha. you know, last year you burnt about $500 million. There were some unusual, you know, kind of. Mm-hmm. items in that. You know, you forecasted slightly better than break even without the pension. Mm-hmm. I can't remember. Is it with the pension benefit now? It's with the pension. Okay. Yes. A lot of moving pieces. All in. Yeah. Okay. Can you help bridge us? I mean, of that bridge, I assume higher rates on MAX, improvement on MAX is the biggest change item in there. what, how do you think about that bridge? Sure. You're right. I mean, you know, the best program we have is the 737 MAX, and going from 281 deliveries to 420 deliveries is significant. It's significant from the perspective of higher revenue, means more gross profit, means more cash flow. It's historically been our strongest margin program. You've seen it in our results in 2017, 2018 and 2019. That's the number one driver. Not, not having a repeat of $130 million of advances to be repaid back to Boeing this year is definitely a benefit for us. Then, you know, when you talk about the pension reversion, that will be a cash flow positive for us this year. You know, we've got some negatives, you know, as part of the forward loss in A350, that will be a cash headwind for us this year. You know, we've talked about the production rates on 737 and overinvesting. That's gonna have some negative impact on cash flows in the early part of the year. We also, you know, have to deal with our, the IAM, our labor contract. In the middle of the year, those assumptions have been baked into our free cash flow guidance. You know, we've got a litigation that has been under appeal that, you know, could end up being a headwind for us this year. You know, at the end of the day, we've got a few one-off moving items. I think I would say number one is the higher production rates on 737, you know, modestly higher production rates on a few other programs will help from a profitability and a cash flow standpoint. Offsetting that is the prep work we're doing to the over-hiring, you know, getting ready for those production rates will offset that. We have a few other moving parts that are moving around. fundamentally, I think that's the story of walking from consuming cash to all in being slightly better than- Have you quantified the potential litigation payment? It's in the ballpark of $40 million-$50 million. Okay. You know, you obviously have had these, you know, longer term targets out there. You know, you gave at your Investor Day, about a year ago. You know, everyone focused on, you know, this idea of 60.5% segment margin, 7%-9% free cash flow margin. Mm-hmm. You know, on the last call, you seemed to walk those back or say you know, "Look, the environment's different. Inflation and so on. Mm-hmm. If we're thinking about, you know, obviously people looking at your stock today, they're not looking at what you're gonna do this year. They're looking at, you know, how close are we gonna get back to, you know, maybe, you know, the kind of margins and cash flow you were producing back in 2017, 2018. I mean, how should we frame that, you know, that longer term recovery at, you know, at this point with those targets seeming to be, you know, off the table? I wouldn't quite say we've walked it back. We're very, very focused on getting back to the levels of profitability and cash flow that our investors saw in 2017, 2018, and 2019. I will tell you that during 2022, some of the macroeconomic issues, you know, around labor and wages and fuel costs, have had a negative impact. We have to try to factor all of that in into our long-term thinking. You know, I'm really focused at this point in time in 2023 is quarterly execution. Delivering the 420 737s, continuing to focus on our cost optimization program. As we go up higher in rates, that will start to sort itself out. We'll start to really see the type of benefits we're achieving from our automation and digitization that we put into the factory. It hasn't yielded the type of benefits at the low rates, and we didn't expect it to. I'm not saying that we're backing off or saying that we can't achieve those same types of targets. You know, from a, from an economic standpoint, things are a bit different and will be a bit different over the next couple of years than they were. You know, we're carrying a higher amount of debt. There's gonna be, you know, a bit of pressure because higher cash interest expense debt that we're gonna have to deal with. We talked about some of these inflationary issues, union negotiations that are off resetting from a labor standpoint or fuel costs go. These are all things that are impacting not only us, but many of our peers. You know, we've got to go out there and work hard to focus on our costs, be more productive, be more efficient. We have to take advantage of these higher production rates, you know, getting to 42, 47 or higher, getting to 60, 65 in A320 are all great things for our business, which will really help us improve the overall profitability and the cash flow, absorb more overhead. The targets are still out there. We're very, very focused on it. You know, we're also very, very focused on continuing to grow our defense and aftermarket business. We talked about $1 billion in 2025 in defense and $500 million on aftermarket, which will really help be nice contributors to profitability and cash flow as we move out into those time frames. I would say, you know, bear with us. Really focused on production rates, working our cost reductions this year, and I think by doing that, you'll see some really nice improvements in profitability and cash flow as we move into 2024 and 2025. Great. Thank you. The questions are up now. You'd use the keypad in front of you. If you currently own the stock, have you seen the audience response questions? Yeah. I really hope all of you own our stock. Not, maybe not. Right. We're. There we go. Hopefully, some of these, you know, these comments I've made around our industry and the demand that's in front of us here, will allow you guys maybe to take another look. Yeah. Next question, please. Understandable. Yeah. I mean, you look at our performance in 2022, you know, I can't debate the position. We're gonna work really hard to execute here in 2023 and earn that trust back. Stick with us. We'll brief you every quarter, and I hope when I come back here next year, that we have- Well into it. 100% in the positive. Okay. Next question. I think we have four more. Again, we're gonna have to show you. Yeah. We have to execute. Next question. This should be fairly obvious. I know what I'm voting for. M&A. Pay down debt. All right, next question. This is an interesting one. Well, we know where we've traded historically. Yes. That's why I want this. Yeah. Okay. Next one. This is easy. Execution. Yeah. Next one. Last one. Yeah. On this one, David, I'd just say we understand the importance of ESG. We'll be producing and printing our third Sustainability Report, which we expect to post on our website in June. We understand the obligations and, you know, as a Tier 1 structure builder, you know, we're gonna support, you know, our industry in doing what we can to play a big part in that. Yeah. All right, Mark, appreciate the time. Thank you so much. Thank you very much.