Spirit Aerosystems Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to Spirit Aerosystem Holding Inc.' 's fourth quarter and full year 2022 earnings conference call. My name is Glenn, and I'll be your coordinator today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on a telephone keypad. If you would like to withdraw that question, please press star followed by 2. I would now like to turn the presentation over to Aaron Hunt, Director of Investor Relations. Please proceed.

Thank you, Glenn, and good morning, everyone. Welcome to SPIRIT's fourth quarter and full year 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, Senior Vice President and Chief Financial Officer, Mark Szczesinski, Executive Vice President and President of Defense and Space Division, Dwayne Hawkins, and SPIRIT's Executive Vice President, Chief Operating Officer, and President of Commercial Division, Sam Marnick. After opening comments by Tom, Duane, 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, including those detailed in our earnings release, in our SEC filings, in the forward-looking statement at the end of this web presentation, and referenced in our call today. 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 fourth quarter and full year 2022 results calls. Last year, we saw domestic travel continue to recover across the globe. The U.S. was the best-performing market, where air traffic was 2% below the 2019 level. And in China, we were encouraged to see some travel restrictions lifted and the 737 MAX returned to service. Domestic air travel favors narrowbody aircraft like the A320 and the 737 MAX, both of which log several significant new orders during the year. The orders and additional backlog provide support to Airbus and Boeing's plans to increase narrowbody production rates further. We are encouraged by the continued demand, which we expect will benefit Spirit since 85% of our backlog is tied to narrowbody aircraft. While demand remains robust, we experienced a number of challenges as we increased production rates during 2022. We had to hire a significant number of new employees who are taking time to reach the same level of proficiency as the workers we had prior to the pandemic. We also experienced higher levels of attrition with the new employees we hired. In addition, our suppliers encountered similar challenges, which resulted in higher levels of part shortages throughout the year. We also encountered higher levels of inflation. Despite these challenges, we managed to increase our production rates across several major programs by 27% overall. On the 737 program, we managed through the challenges as production increased from 162 units in 2021 to 281 units in 2022, a 73% increase. To support the recovery and the expected higher level of production in 2023, we began hiring additional headcount in the fourth quarter, which drove additional cost, but as an investment to get ready for the production rate increases in 2023. While we expect to see ongoing supply chain challenges and issues as we stabilize production, our December 737 production was 40 units, demonstrating our capability to produce at higher rates. In 2023, we plan to produce about 420 737 shipsets, which includes the units behind schedule from 2022. In January, we delivered 33 737 units. Turning to our wide-body programs, the 787 program navigated through challenges last year, and we delivered 20 units to our customer. Our 787 production resumed with a new build process to address the fit and finish requirements applicable to all the partners on the program. After completing a few units with the new process, we have found more labor per unit is needed than originally expected, which is one of the reasons driving an additional forward loss on future units this quarter. It is also taking us longer than we expected to rework the stored 787 units. We now believe we have incorporated what is needed for the 787 fit and finish requirements in the new build process and rework. On our A350 program, we continue to see disruption driving increased cost pressure. During the year, we saw continued disruptions from the supply chain. The transfer of parts and the ramp-up of production put the program behind schedule. We have initiated our recovery plan. However, recovery costs included expedited shipping of components to support our customers' production are resulting in an additional forward loss. Mark will walk you through the details of the forward losses on these two programs in his sections. We continue to support Airbus on their narrowbody programs. Our production was in line with demand from Airbus, and we expect to continue to produce to remain in sync with their production plans. In 2023, we plan to produce between 650 and 680 A320 units and about 80 A220 units. In looking at our widebody programs for 2023, we will support our customers as they increase their production rates to support the international traffic recovery. On the 787 program, we expect to produce between 40 and 45 787 shipsets. On the A350 program, we plan to remain in sync with Airbus production as they increase from five to six aircraft per month and plan to produce about 60 units on the A350. Now let's turn to our defense and aftermarket businesses. On defense and space, our segment president, Dwayne Hawkins, is retiring from his current role in just a few weeks, and we'll hand off the segment to Mark Miklos. Duane and the team have done a great job in building SPIRIT's Defense in Space segment, and we wanted to give him an opportunity to take you through some of the many highlights from 2022. Duane?