Spirit Aerosystems Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Spirit Era Systems Holding Inc. Third Quarter 2020 Earnings Conference Call. My name is Cole, and I'll be your coordinator today. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the presentation over to Ryan Avey, Director of Investor Relations and Financial Planning and Analysis. Please proceed.

Thank you, Cole, and good morning, everyone. Welcome to SPIRIT's third quarter 2020 earnings call. I'm Ryan Avey, Director of Investor Relations and Financial Planning and Analysis. And with me today are SPIRIT's President and Chief Executive Officer, Tom Gentile, and SPIRIT's Senior Vice President and Chief Financial Officer, Mark Sachinsky. After opening comments by Tom and Mark regarding our performance and outlook, we will take your questions. In order to allow everyone to participate in the question and answer segment, we ask that you limit yourself to one question, please. 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 and our SEC filings and in the forward-looking statement at the end of this web 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. And 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, Ryan, and good morning, everyone. Welcome to SPIRIT's third quarter 2020 earnings call. The global aviation industry continues to struggle with the historic reduction in air traffic caused by the COVID-19 pandemic, which has created significant challenges for both airlines and aircraft manufacturers. As the pandemic unfolded, we quickly took actions to reduce costs and preserve liquidity. As we mentioned in last quarter's call, we have implemented about a billion dollars of annualized cost reduction actions, or a 40% reduction in the non-material base. We've also made the very difficult decision to reduce the headcount of our commercial aviation programs by 44%, which is more than 8,000 people. Most recently, we announced the closure of our McAllister, Oklahoma site, which does three-axis machining and assembly for Boeing programs. Most of the work for McAllister will now move to our Tulsa and Wichita facilities. Our biggest program is the 737 MAX, And we have been encouraged by the news on the continued progress Boeing has been making with the FAA and global regulators to return the aircraft to service. Completion of the certification flights, a joint report from the United States, Canada, Brazil, and the European Union Civil Aviation Authorities, which was incorporated in the FAA's draft flight standardization board report, are all key milestones for the program. We are a proud partner on the MAX and make 70% of the structure. We are looking forward to seeing the airplane safely back in service. For 2021, we are planning 737 production deliveries to support Boeing's production requirements. Boeing has indicated that they will be at a rate of 31 aircraft per month by early 2022. Through 2021, we also plan to reduce the current buffer inventory of 128 737 shipsets. We will lag Boeing's production rates by about five units per month and plan to decrease the inventory of shipsets to a permanent buffer of 20 to 25 units. The production rates on the other programs for Boeing and Airbus remain as they have reported. Based on our forecasted production, we estimate our free cash flow for 2021 will be negative, but significantly improved from 2020's usage. This estimate of 2021 cash usage does not include the Bombardier assets that we just acquired or cash tax benefits, both of which will be positive. we expect free cash flow to be positive in 2022. Over the last few months, three actions have helped improve our overall liquidity position. First, in late September, we mutually terminated our agreement to acquire ASCO, eliminating a capital outlay of $420 million. While we were disappointed that the deal did not close, we have tremendous respect for ASCO and will continue working with them as a valued supplier. Second, We also took actions to restructure our balance sheet and improve our financial flexibility. We repaid our term loans of $430 million during the quarter and terminated the 2018 credit facility on October 5th. We also raised $900 million of new secured debt. And third, we recently closed the acquisition of select Bombardier assets for $865 million, which is 20% reduction from the original enterprise value. The deal consists of a $275 million cash payment to the sellers, a 45% reduction from the original cash consideration of $500 million. The $865 million deal value includes certain liabilities for pension and government incentives. These three actions result in an adjusted Q3 liquidity position of $2 billion. Mark will provide further details a little bit later. Now that we've closed the Bombardier acquisitions, we are thrilled to welcome our newest colleagues in Belfast, Casablanca, and Dallas. The additions help accelerate our strategic transformation by providing more Airbus content, aftermarket business, defense, and low-cost country operations. The Airbus content includes the composite wing for the A220, which leverages a state-of-the-art fabrication process known as resin transfer infusion. As a smaller narrow-body aircraft, the A220 will benefit from from the quicker recovery of domestic air travel around the world after COVID-19. In general, Spirit will benefit from this higher domestic demand since 85% of our unit backlog are narrow-body aircraft. The acquisition also significantly increases our aftermarket and maintenance repair and overhaul business. Their focus on Airbus repairs and presence in the European market will complement Spirit's existing expertise with Boeing repairs and presence in the U.S. Spirit also secures exclusivity on Bombardier's business jet programs and is now one of their largest suppliers. And we expand our Rolls-Royce relationship with work on the BR-710 and Trent 700 engine nacelle components. In addition, the acquisition includes a world-class manufacturing facility in Morocco with a highly trained workforce located in an aerospace manufacturing cluster. The facility has a wide range of experience, with flight controls, engine nacelles, and fuselage sections, and has an extremely competitive cost structure. Finally, the Bombardier acquisition also establishes a robust path for Spirit to participate in the evaluation and development efforts for the UK's next-generation Tempest fighter program. Spirit's leading aerostructures technology capability, along with a larger footprint in the UK, is well-suited for us to become a strong Team Tempest industrial partner. This opportunity fits nicely into Spirit's overall strategy of expanding our defense business, which, by the way, realized a 20% growth rate in 2020 revenue. We expect more than 15% growth in our defense business in 2021. In summary, the acquisition of the Bombardier Aerostructures assets accelerated the diversification of our customer base. In 2021, based on preliminary estimates, we expect Boeing commercial revenue to account for 45 percent of our total revenue, then Airbus at 24 percent, defense at 15 percent, business and regional jets at 8 percent, and aftermarket at 8 percent. The revised enterprise value for the Bombardier acquisition of $865 million represents a multiple of 11.8 times expected 2020 EBITDA adjusted to remove one-time items. Our plan is to generate synergies in a number of areas, including the supply chain, facility consolidation, and overhead reduction over the next three years. After taking into account the expected synergies of 6 percent of revenue, the adjusted EBITDA multiple will be 7.3 times. Our preliminary estimate of 2021 revenue for the Bombardier assets that we just acquired is between $700 million and $800 million. One other highlight for the quarter was the work we did to manufacture ventilators in support of the battle against COVID-19. After building a state-of-the-art production facility, logistics system, and global supply chain, the Spirit team, working with our partner Vyair, successfully delivered 20,000 critical care ventilators to U.S. customers and customers in more than 20 different countries. The contract was on a cost-plus basis and was accretive to our results. Spirit is very proud of our partnership with Vyair to meet the demand for life-saving ventilators around the world. With that, I'll turn it over to Mark to take you through our detailed third quarter results.