Spirit Aerosystems Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to Spirit Aerosystems Holdings Incorporated's fourth quarter and full year 2020 earnings conference call. My name is Matt, and I'll be your coordinator today. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the presentation over to Aaron Hunt, Director of Investor Relations. Please proceed.

Thank you, Matt, and good morning, everyone. Welcome to SPIRIT's fourth quarter and full year 2020 earnings call. I'm Aaron Hunt, Director of Investor Relations. With me today are SPIRIT's President and Chief Executive Officer, Tom Gentile, SPIRIT's Senior Vice President and Chief Financial Officer, Mark Suchinski, and SPIRIT's Executive Vice President and Chief Operating Officer, Sam Marnick. After opening comments by Tom and Mark regarding our performance and outlook, we will take your questions. Before we begin, I need to remind you that any projections or goals we may include in our discussion today are likely to involve risks, which are detailed in our earnings release, in our SEC filings, and in the forward-looking statement at the end of our presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of non-GAAP measures we use when discussing our results. As a reminder, you can follow today's broadcast and slide presentation on our website at investor.spiritarrow.com. With that, I would like to turn the call over to our Chief Executive Officer, Tom Gentile.

Thank you, Aaron, and good morning, everyone. Welcome to SPIRIT's fourth quarter and full year 2020 results call. 2020 was one of the most challenging years in aviation history. For Spirit, the max grounding and the COVID-19 pandemic created a dual crisis. Our response focused on five critical actions, protecting our employees, restructuring our cost base, strengthening our liquidity, implementing productivity and efficiency projects, and diversifying our business. Protecting employees from COVID became a top priority. COVID represented an unprecedented healthcare challenge, and as the virus began to spread, we put in place protocols to protect our employees. We referenced best practices and CDC guidance to implement enhanced cleaning measures, air purification, social distancing, mask requirements, and extensive testing. All of these measures have allowed us to continue our operations while protecting employees. We also restructured our cost base to align to lower levels of production. Almost immediately in 2020, we started with the need to react to multiple production rate reductions due to the 737 MAX grounding and then the COVID pandemic impact. After producing 606 MAX shipsets in 2019, we produced just 71 in 2020. We also saw substantial reductions in the production rates of all of our other Boeing and Airbus programs. We moved swiftly to take actions to mitigate the impact of these adjustments to our original plans. Consequently, through the restructuring of our cost base, we reduced our commercial aviation program headcount by more than 8,000 people, trimmed our purchase services, and set in motion multiple facility closures as we addressed these significantly lower production rates. Overall, we executed $1 billion of annualized cost reductions, or about 40% from the 2019 non-material base. We also strengthened our liquidity position and, as a result, established a solid foundation to see us through these difficult times. Our initial actions included reducing the cash dividend to a penny per share, suspending the share repurchase program, and deferring $120 million of capital expenditures. Boeing also provided a $225 million cash advance and granted a deferral of $123 million repayment until 2022. In April, we raised $1.2 billion of senior secured second lien notes and paid down our $800 million revolver, which put us at $1.9 billion by the end of Q2. In the last half of the year, we paid down $426 million on our term loan and completed another $900 million capital raise. After negotiating a $225 million discount on the Bombardier asset acquisition, mutually terminating the ASCO acquisition, and reducing our cash usage in the third and fourth quarter, we ended 2020 with a $1.9 billion in cash on hand. The third focus area was productivity. While challenging, the reduced production rates created an unprecedented opportunity to accelerate productivity and efficiency projects that would have been nearly impossible at higher production rates. During 2020, we completed the consolidation of warehouse space across our Wichita campus into our global digital logistics center and consolidated more than 500,000 square feet of warehouse space into a seven-story, 150,000 square foot facility. In this new facility, we have leveraged technology similar to what other world-class distribution centers use, which translates into a more accurate and timely part handling and delivery system to the mechanics building product on our factory floor. On the 737 MAX, we have a new 10-station hybrid automated assembly line for floor beams. A MAX 8 has 47 floor beams with more than 400 different configurations. This new assembly line will improve quality and our ability to manage all of these configurations. It will be operational by the end of this quarter. At our Presswick facility, we have implemented a new state-of-the-art resin transfer molding technology for A320 spoiler production. The team is making good progress on the development of the production line that will efficiently produce hundreds of spoilers per month at peak rate. The most immediate efforts are focused on completing the first part qualification process, then, once that's complete, moving toward production at rate by the end of the first quarter. Additionally, we have accelerated our company digitalization efforts. Last year, we implemented a manufacturing execution system, or MES, on the 737 MAX fuselage line. The system is a digital tool to track data and production metrics, which simplifies many of the reporting activities performed by managers. As a complement to the MES, we have put in place digital manufacturing operating system boards to give our managers visibility into real-time production process and facilitate discussions in daily meetings. We have also implemented digital workflow solutions to manage part movements across our main Wichita factories. Another recent change we have started is the deployment of digital work instructions. We have transitioned from a manual, text-heavy set of documents to new digital work instructions that provide graphics, pictures, and detailed instructions tied to 3D digital models for our mechanics and inspectors. From implementing integrated tools for operations management to visualization of the fabrication and assembly process, our digitization projects underway are expected to reduce the time needed to build product and enhance quality for our customers. Another significant project has been improving the production flow in our main 737 MAX factory. we have freed up over 125,000 square feet of manufacturing space in this fuselage factory by shifting sub-assemblies to new locations. For example, we moved the fabrication of the MAX forward fuselage to a new facility on our campus where we also build the forward fuselage for the 767. We are also shifting the construction of the MAX wing box out of the main MAX factory to our Tulsa site. These moves are enabling a simplified 737 fuselage production flow. Previously, the movement of parts and sub-assemblies crisscrossed the factory, and sometimes the same part traveled a similar path multiple times before moving to the end of the line. The new production flow reduces the number of moves needed, drives a more efficient use of time, and improves productivity and quality. We are also working closely with many of our partners in the supply chain to help them navigate this challenging time in the industry. In the last 12 months, we have provided assistance to hundreds of suppliers. This support includes contract extensions, purchases of finished goods and raw materials, and vendor financing through our partner at Bank of America. Recently, Bank of America secured a guarantee from the U.S. Export-Import Bank, EXIM, to help finance this program. Our suppliers are critical partners to our success, and this level of support is important as we work to secure our supply chain as production rates recover over the next few years. We are also putting additional emphasis on environment, sustainability, and governments, also known as ESG. An additional improvement we implemented last year was to put an agreement in place to power our entire 12.8 million square foot Wichita site with 100% wind power. In addition, water recycling is another area where we have integrated systems and adopted practices to minimize water consumption and improve water efficiency. With our reverse osmosis system, Spirit Wichita recycles more than 2 million gallons of highly purified water each day and recycles 575 million gallons annually, which has enabled us to reduce our freshwater demand by more than 70%. At our Spirit Belfast site, we have one of the largest roof-mounted solar arrays in the region. In 2020, 70% of the Belfast plant's electricity came from clean energy. At our Presswick site, where we've just built a new Aerospace Innovation Center, the team installed a second bank of solar arrays to supplement an existing bank at our Presswick Finishing Center. 100% of the power consumed on our Presswick site is from solar or wind power. Having worked to stabilize the business in 2020, We are also focused on positioning Spirit for the long term. On page five of the presentation, we have summarized Spirit's strategy. Our vision is to be a diversified design and manufacturing champion. In terms of where we want to compete, our strategic priorities are to focus on Boeing, Airbus, defense, aftermarket, business and regional jets, and non-aerospace manufacturing, where our skills and capabilities translate. In terms of how we want to compete, our execution requirements focus on make buy, an advantage supply chain, world-class manufacturing, seven distinctive technologies, digitization, and talent and inclusion. At Spirit, our DNA has always included a strong emphasis on safety, quality, customer focus, and delivery. We augment these basic elements of our DNA with our values. transparency, collaboration, and inspiration, with an encouragement to our employees to speak out. Overall, our objectives are to diversify, de-lever, and drive improved margins. Let's look at how we've been diversifying Spirit. During the past year, we made excellent progress on our diversification strategy with the acquisition of the Belfast, Morocco, and Dallas sites from Bombardier and the acquisition of FMI, a leader in high-temperature materials. After closing the deal with Bombardier last October, our integration team quickly started working with our new team members and created a list of 450 integration tasks ranging from rationalization of our facility footprint to systems integration to ensure a smooth transition. Since the October close, they have completed around 65% of the tasks. By the end of the first quarter, we expect to be 75% complete. We have in the room with us today our COO, Sam Marnick, who is leading this overall integration. If you have questions on the integration later, she will be able to answer them. The acquisition of the Bombardier assets accelerates our diversification. The addition of the A220 wing, which leverages composite resin transfer infusion technology and is fully integrated with all systems and flight control surfaces, positions Spirit as one of Airbus' largest suppliers. With the experience gained on the A220 program, we believe Spirit has a competitive position for future narrowbody aircraft as we build knowledge and expertise on composite wing production. The acquisition has also roughly doubled our aftermarket business and is very complementary to our current capability. Previously, Spirit worked on Boeing work in North America and the Belfast site focused on Airbus work in Europe. Our merged team now gives us the opportunity to offer the combined aftermarket capabilities across more products and geographies. We believe we are in a good position to achieve our objective of $500 million in aftermarket revenue by 2025 at accretive margins. In addition, Spirit's business jet work statement expanded by roughly four times with the acquisition, and we have become one of the largest suppliers to Bombardier. From the midsize to very large business jet categories, our capability and scale as a business jet supplier can provide great value to the manufacturers in this segment of the industry. Our belief is that business jets are likely to recover sooner than commercial aviation following the pandemic. Our objective is to have the business and regional jet work achieve $500 million of revenue by 2023, also at accretive margins. The Bombardier acquisition has also resulted in a stronger defense business, which we had not previously expected. Our Belfast team recently was selected by the UK to lead Project Mosquito in the prototype design and manufacture of the UK's first unmanned combat aircraft, which is also referred to as a loyal wingman. The three-year, $41 million deal to develop the aircraft highlights the significant capabilities our New Spirit Belfast colleagues bring to military production. Overall, we expect that the Bombardier assets will have about $700 million of revenue in 2021 and expect the purchased business to grow at approximately 15% annually with future margins north of 10%. And in the future, the assets of what we have purchased will be included within our existing segments. For this year, it will be wing at about 43%, fuselage at about 28%, and propulsion at at 29%. The addition of the skilled and experienced team members in Belfast, Morocco, and Dallas will position Spirit well for many years of potential growth. While the Bombardier asset acquisition was our largest, the FMI acquisition, which we completed last January, has opened new opportunities for our defense business. The integration of FMI is complete, and we are very pleased with the response we have received from customers. The combination of of FMI's high-temperature composite capability with Spirit's industrialization expertise has expanded the products and capabilities to current and potential customers. We now have a very robust pipeline of opportunities, especially in hypersonic weapons. Most recently, NASA selected FMI to provide thermal protection systems to support several emerging space missions under the Science Mission Directorate. We are thrilled to be selected to support NASA and contribute to the future of deep space exploration. FMI has been a great addition to the Spirit family, contributing to our 20% defense growth in 2020 and projected 15% growth in 2021. If we look at the programs of record for the programs that we are on, they would generate future defense sales of approximately $6 billion. Our overall defense capabilities, along with our open commercial capacity, will be important elements in our plan to grow our defense business to $1 billion of revenue by the mid-2020s with typical defense margins. On page seven, we have summarized our revenue split over three years so that you can see the expected benefits of our efforts to diversify Spirit. In 2019, Boeing Commercial represented 74% of our revenue. In 2021, we expect Boeing Commercial will account for 44% of revenue based on current production rate plans. We expect that in 2021, Airbus will account for 23%, defense for 18%, and aftermarket and business jets will each represent about 8% of revenue. Emerging from this crisis, we believe Spirit will be a more diversified company with several new and profitable revenue streams. We are also focused on delevering. As we recover from the effects of recent challenges, we have begun to work on our current debt level, and plan to pay down $1 billion over the next three years. We have started the process by redeeming the $300 million floating rate note, which was due in June of 2021, using cash from our balance sheet. We expect this process to be complete by tomorrow, February 24th. From there, our next debt maturity is $300 million due in 2023. And by that point in time, we expect narrow body production rates to be at much higher rates than they are today. Our next maturity after that is not until 2025. We remain committed to regaining an investment grade credit rating. Our third objective is to drive margins. As the vaccine rollout continues and air traffic begins to resume, domestic travel will recover first. We expect that this trend will favor single aisle aircraft such as the 737 MAX and the A320. They will be the first to recover as they perform the bulk of domestic flights. We believe Spirit will benefit from this trend because 85% of our backlog is narrow-body aircraft. With all the productivity actions we have taken, we expect our margins will recover back to the historic levels of about 16% once the max production rate reaches the low 40s. While the Bombardier acquisition will be slightly dilutive overall to this level, we still expect to achieve our historic targets in aggregate. Although we expect that international traffic will take longer to recover, which will put pressure on wide-body production, which typically serve those routes, we are actively repurposing our production capacity for wide-body composite aircraft to defense applications. This transition will replace the hours we have lost due to wide-body rate declines and should have a positive impact on margins in the future. With that, I'll turn it over to Mark to continue through our detailed financial results and our expectations for 2021. Mark?