Tom Gentile: I think, yes, I think you had that wrong.
Operator: Our next question comes from David Strauss of Barclays. David, the line is yours.
David Strauss: Thanks. Good morning. So, the updated free cash flow forecast, I mean you’ve got — in terms of nonrecurring positive, you got $100 million of advances. You’ve got the $180 million pension benefit. So, apples-to-apples, it’s kind of a $500 million burn this year. Is there any way to bridge still the positive free cash flow in 2024?
Tom Gentile: I mean the simple answer is rate increases, primarily on the 737. And that’s going to also help the back half of this year. As I mentioned, we’re basically moving to 42 aircraft per month cycling in August, and we’ll continue at that rate for the rest of this year and then next year, that will be our starting point. So, the improvement in cash flow is really going to be delivering more aircraft, primarily the 737.
Mark Suchinski: And also then, David, we won’t need to build as much inventory spare parts as the — and store’s inventory as the supply chain continues to get healthy. So, we’re — there’s no doubt we’re taking on a lot of inventory at this point in time to prepare for those higher production rates to drive stability. So, as Tom said, I think the two primary drivers are higher deliveries, which will generate more gross profit, which generates cash. The higher production rates will help us absorb more excess costs, and that’s cash cost that will be mitigated. And then the third component is getting to a much better place as it relates to inventory and getting past some of these one-off forward loss charges that are putting additional pressure on the current year cash flow.
David Strauss: Okay. A quick follow-up on the MAX rate. Can you just reconcile — I think, Tom, you said you’re still breaking the 42 here over the near term, but your implied second half of the year delivery guidance looks like it’s averaging kind of 35 a month. So, can you just reconcile that? And does Boeing or is there enough in buffer stock at this point given what it looks like here shortfall relative to Boeing’s rate to allow Boeing to hit the 38 a month that they’re now trying to achieve. Thanks.
Tom Gentile: Right. So, you’re right. If you just do the math, if we’re at 169 units delivered to date and you take the midpoint of our guidance on 370 to 390 to 380, that would imply 211 for the back half of the year for six months, which is 35 per month. But the way I would say it is we’re cycling at 42. So, we’ve got the headcount in place. We’ve got 2 full lines, each producing 21 aircraft per month. So, we are cycling at 42 per month. The reason it’s a little bit less than 42 in the back half of the year is just unscheduled days, so M days that we are actually building. So you think about Labor Day, Thanksgiving, day after Thanksgiving and so forth. So there’s several unscheduled days. And then in addition to that, we’ll be firing blanks through the production line as we normally do to increase surge capacity and just provide some cushion into the production.
So, that’s why the average is 35. But we are cycling now at 42 per month. We will end the year at — delivering at 42 per month, and that will be the starting point for next year. In terms of the buffer, as you know, we built up buffer during the period of time when the MAX was grounded, and we were still building at 52 a month and delivering to Boeing at 42 per month. The good news is that, that buffer came in very handy during both the vertical fin issue and the strike. We were able to deliver more units from buffer to help minimize the disruption to Boeing. And so the buffer has gone down, but we still have about 50 to 55 units in Wichita, and then there’s some others that are held up in Seattle. Some of those units are for customers that aren’t going to deliver in the near term, like, for example, for China.
But the buffer is still performing a very valuable function to ensure that we can meet Boeing’s production rates as they go up and as we go up.
Operator: Our next question comes from Seth Seifman of JPMorgan. Seth please go ahead.
Seth Seifman: Thanks very much. Good morning. When we look at the continued forward loss charges on the A350 and the A220 and Spirit kind of having to absorb the supply chain challenges there, I guess when we think about Airbus as a customer, it seems like Spirit is losing money there. We’ll continue to lose money there for a while. And we know from what Airbus says that they plan to continue to make structures a core internal capability for them. I mean does it — at some point, is this not sustainable to continue working with them?
Tom Gentile: Yes, yes. So, thanks, Seth. I would say this is Airbus is a valued customer. They are one of the two big commercial manufacturers of aircraft in the world. And it’s very important that Spirit as an aerostructure provider supports them as well as Boeing and also expands into defense. So, I would say Airbus is an important customer, and we want to continue to develop and further that relationship. But I’d also say that you’re absolutely right, the A350 and the A220 have been very challenged programs and have been in forward losses. And as we look broadly in the industry and air traffic is recovering, as I said in my remarks, there’s obviously huge strong demand for aircraft. And we saw that at Paris, which was actually the third highest air show ever in terms of orders.
