Myles Walton: Pat, sorry for that piece of blunt, but I know Dave Gitlin took himself out of the potential running for Boeing CEO. I’m curious if you’d care to share your thoughts on your future and your interest in that potential position?
Patrick Shanahan: Yes. No, thanks for the question, Myles. I wake up every single day focused on Spirit, our teammates here, our suppliers, customers and shareholders. And that’s my plans.
Myles Walton: Okay. I’m going to go for a second question, that was okay. So the audit that the FAA ran inclusive of Spirit’s facilities, can you quantify how many of those sort of failed audits or failed audit points you’ve addressed and have submitted to Boeing as part of a master schedule of recovery against those audits?
Patrick Shanahan: Yes. I mean just right off the top of my head, I remember that there were 28 findings that were documented and I have to go ask our team, but I’m very confident that every item has been addressed with a mitigating action. And then our focus has really been the follow-up. So I mean it’s one thing to have the action plans. The other is to make sure that we’re following through. And these were focused on things like tagging of storage parts and scrap materials, I think that’s what you’re referring to.
Myles Walton: That’s right.
Patrick Shanahan: We’ve followed through on those. But we — our quality plan was addressed more than what they had audited and those quality plans continue to progress and grow week by week. And as I mentioned before, with the 15% improvement — and this isn’t just on the three seven’s across our other programs. The attention and the benefits that we’re seeing going to continue to improve week over week and have a lot of confidence in the second half of this year.
Operator: The next question comes from the line of George Shapiro from Shapiro Research.
George Shapiro: Two questions, I guess. One for you, Pat. What gets these Airbus negotiations to some resolution? I mean, I think like by your own admission, you’ve been on it for 3 to 6 months at this point in time. Do you wind up having to threaten that you’re not going to make the investments? Or if you could just provide some color on that? And then, Mark, one for you. The underlying margin to me looked like it was like 5.4% this quarter, down from around 9%. And you had mentioned that there were inefficiencies caused reductions. How much of that reduction was something that was be fixed and how much of it was kind of going to be embedded in the longer-term profit margins?
Mark Suchinski: Yes, George. Let me take the second question, and then Pat can jump in on the Airbus side of things. We talked about the disruption in the first quarter, the standing up of the process to inspect the units and the FAA audits and the NTSB investigation, all of that was very, very disruptive, right? And we continue to enable the operational execution of this inspection process. And so all of that has now been embedded in our contract margins and it’s put some pressure on our profit rates and the amounts that we’re booking here. I think over the long term, a lot of this is onetime investment that we’re making. It’s near-term pressure from a cost standpoint. But over the long term, when we think about this and the impact it has on a profitability rates, particularly on the 737 program, we think as we get through the learning and implement this and take the benefits from it that Pat talked about that it won’t have a long-term negative impact on the margins.
It’s just — it’s painful right now. I think we’re syncing up the system. Short-term pain right now. We’re doing the right things from a business standpoint, and this will pay off as we think about the future.
Patrick Shanahan: Yes. Thanks, Mark. George, maybe to answer your question, my experience in this industry is threats are not effective. And at the end of the day, we all have to work and partner together. But I would just say almost to a fault, we have tried to find solutions to this situation. And our commitment has been to the integrity of supply, and I have share this message time and time again. Financial risk ultimately manifests itself as operational risk. And the system is elastic until it’s not. So if you look at what Boeing has done, they’ve secured supply from us with their agreements. Now we need to do the same with Airbus to protect supply. And we’ll continue to have the conversations that we’re having, and I am confident that we will come to some type of conclusion.
George Shapiro: But I guess, Pat, I mean, what kind of gets it going to get to that conclusion when you’ve been working on it for quite a while now.
Patrick Shanahan: Well, I think with these production rates, we’re going to have to have some of those real family meetings. And that’s what it’s going to take. But me threatening not to ship them parts or the drama, all of that is not a way to ensure that their customers get their supply. But at the same time, we have to have a financially strong business. And partnerships are the only way to do this, but we’ll probably have to have a few more family meetings.
Operator: The next question comes from the line of Gavin Parsons of UBS.
Gavin Parsons: Pat, you mentioned aligning factory costs, but retaining the ability to snap back in rate. Can you just give us a little more detail on what that means for the rate for your own suppliers, if that reflects any workforce changes? And how much notice you’d need to go above 31 per month?
Patrick Shanahan: Right. Yes, we spend a lot of time on this subject. So I’ll break it into two areas, maybe talk about the supply chain first. When we think of the 3 7, there are 425 critical suppliers. When we talk about suppliers, it’s not monolithic. So they’re not all the same. They’re about 400 suppliers in addition to that, that provide raw material forgings, fasteners. So we treat them differently, but they’re a critical part of the supply chain. A big component of what we’ve been trying to do or what we’ve been doing is, first of all, communicating formally and informally and then really doing the analysis of where do we need to create critical buffer stock going forward so we’ll probably continue with the higher production rate.
