Spirit Aerosystems Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to Spirits Aerosystem Holdings Inc. first quarter 2022 earnings conference call. My name is Victoria and I'll be your coordinator today. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you wish to withdraw your question, please press star followed by two. If you have joined us online, please press the red flag icon. When preparing to ask your question, please ensure that your line is unmuted locally. I would now like to pass the presentation over to Aaron Hunt, Director of Investor Relations. Please go ahead.

Thank you, Victoria, and good morning, everyone. Welcome to SPIRIT's first quarter 2022 results call. I'm Aaron Hunt, Director of Investor Relations, and with me today are SPIRIT's President and Chief Executive Officer, Tom Gentile, SPIRIT's Senior Vice President and Chief Financial Officer, Mark Szczesinski, and SPIRITS Executive Vice President, Chief Operating Officer, and President of Commercial Division, Sam Marnick. After opening comments by Tom, Sam, 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 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, Aaron, and good morning, everyone. Welcome to SPIRIT's first quarter earnings call. We enjoyed meeting many of you at our investor day in March. Based on the positive feedback received from those who traveled to Wichita, we are glad we had the opportunity to share with everyone some of the improvements we are making in our factories to prepare for the future. Our recovery continues despite ongoing challenges from the COVID-19 pandemic, the Russia-Ukraine conflict, inflation, and supply chain disruptions. Our factories continue to execute on deliveries to our customers, although we have seen some downward revisions in schedule to some programs. We continue to work with Boeing, Airbus, and our other customers on production rate scenarios in this dynamic environment. The Russia invasion of Ukraine adds a new element of uncertainty to the recovery. In terms of revenue, we only have a small amount of commercial and aftermarket sales for the Irkut MC-21 that have been affected to date. In terms of supply chain, we purchased about 90% of our titanium through Boeing and Airbus buying consortiums, and both of them have sufficient stockpiles on hand to meet our immediate needs. In terms of our other titanium requirements, we have been able to procure approximately 12 to 18 months of requirements. Both the Boeing and Airbus buying consortia and our own supply chain teams have been developing alternative sources for titanium. The conflict is also accelerating inflation that had already begun earlier in the quarter. Increased logistics and utility costs have put pressure on our operations. Even though both of these items are a small percentage of our overall costs, we are working to offset the increases. One of the ways we work to mitigate inflation in our supply chain is through long-term agreements. In some cases, our agreements with suppliers go out to 2033, which matches the term of our pricing contract on the 737 MAX with Boeing, providing a natural hedge to help mitigate short-term inflationary pressure. In terms of pricing, most of our customer agreements have clauses that help address both labor and material inflation and provide the ability to offset some of the increase in costs. As we start to produce at higher rates, we are beginning to see signs of stress at some of our suppliers. Skilled labor availability and challenges with OEM qualifications and approvals are leading us to take actions to secure part supply in order to maintain a healthy production system. Sam will go over a few more details in her remarks on how we are addressing supply chain issues. Despite the challenges we have faced, we remain sharply focused on progressing our three key priorities, diversifying our revenues, delevering $1 billion over three years, and driving margins to our 16.5% target. Our Belfast site is a key contributor to our diversification efforts. Our Airbus work packages increased significantly from this acquisition with the addition of the A220 integrated wing and center fuselage. and strengthened Spirit's position as one of the top external suppliers to Airbus. We also became a top supplier to Bombardier with the addition of significant business jet content on the Challenger and the Global Express. One significant development recently is that we reached an agreement with the United Kingdom's Department for Business, Energy, and Industrial Strategy to retire the launch investment associated with the A220 program earlier than planned. Mark will go into more details on this financial transaction in his remarks. In early April, working with our two Belfast Union partners, we also negotiated a new pay agreement that covers more than 2,000 Unite and GMB represented employees in Belfast. The mutually beneficial arrangement, which runs through December of 2023, is an important element in our commercial segment's future. On the 737 MAX program, We are just moving to a production rate of 31 aircraft per month and are planning right now to stay there for the rest of the year. Our expectation is that we will produce 315 737 MAX units during 2022. Given what Boeing has communicated about their production rate, it will now likely take longer than we originally expected to reach a permanent buffer of 20 units of the Boeing owned inventory in Wichita that will help cushion the production system in the future. Turning to the 787 program, we are currently expecting to deliver about 20 units in 2022, a reduction in schedule, which contributed to the forward loss this quarter and created some headwinds to inventory on the program. On Airbus programs, we are generally in line with expectations for the year. Airbus remains extremely bullish on demand for the A320 and the A321 and plans to hit the production rate targets that they have communicated publicly. On the A350, we have begun engineering work on the new freighter, which Airbus has announced for entry into service in 2025. Our defense and space business showed solid growth in the first quarter, and we expect to see that growth pick up in the back half of the year as current programs mature. The defense and space team had some great wins in this quarter, including winning the development contract announced by Boeing to support the B-52 commercial engine replacement program. We will be responsible for the engine pylons and the cells on this program. An interesting note is that all of the B-52Hs currently in service today were built in our Wichita facility. We are excited to support the B-52's mission for many years into the future. We have a strong defense and space pipeline, which is almost entirely focused around Department of Defense programs that are currently in development, but not yet fielded. offering significant long-term upside to our defense and space business. Our aftermarket business also had a very strong first quarter, growing 52% on the top line and delivering 23% margins. The team achieved this growth even after offsetting the loss of MC21 aftermarket revenues. Our aftermarket team has also been aggressively pursuing new opportunities. Just last week, Boeing Global Services selected Spirit as their partner for 737 MAX nacelle and flight control surface repairs. Our efforts to build a global MRO footprint enable us to serve Boeing's customers around the world with industry-leading turnaround times. We were also pleased to announce a new partnership with Guangzhou Aircraft Maintenance Engineering Company, also known as GammaCo, to serve as an authorized Spirit repair center in China. I'll now turn it over to Sam to describe how we are driving productivity, rate readiness, and growth in our commercial segment. Sam?