Spirit AeroSystems Holdings Inc (SPR) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to Spirit AeroSystems Holdings Incorporated first quarter 2012 earnings conference call.

My name is Gina and I will be your coordinator for today.

At the time all participants are in listen-only mode.

We will be facilitating a question-and-answer session toward the end of today's conference.

(Operator Instructions) As a reminder , this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call , Mrs.

Coleen Tabor, Director of

Thank you, and good morning.

Welcome to Spirit's first quarter 2012 earnings call.

I'm Coleen Tabor and with me are Jeff Turner, Spirit's President and Chief Executive Officer, and Phil Anderson, Spirit's Senior Vice-President and Chief Financial Officer.

After brief comments by Jeff and Phil regarding our performance and outlook, we will be glad to take your questions.

In order to allow everyone to participate in the question and answer segment, we do ask that you limit yourself to one question.

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 news release and our SEC filings and in the forward-looking statement at the end of this web presentation.

As a reminder you can follow today's broadcast and slide presentation on our website at SpiritAero.com.

With that I would like to turn the call over to our Chief Executive Officer, Jeff Turner.

Thank you, Coleen and good morning.

Let me welcome you to Spirit's first quarter earnings call.

I will begin with a look at our business and related performance and then Phil will review the financials.

After that we will be glad to answer your questions.

Let's begin on slide two.

Let me begin by saying how thankful we are for the safety of our employees, contractors and our community in Wichita during and after the recent tornado.

I'm extremely proud of what our team and partners accomplished in a very short period of time to bring our Wichita facility back on-line safely.

It is a testament to the team we have here at Spirit as well as our unions, customers, suppliers, and government and community partners.

I would particularly like to note our partner Eby Construction for their tremendous support during this difficult period.

I am pleased to say that due to the team's execution of our disaster recovery plan, all employees returned to work on April 23rdand have shipped products across all core programs since the tornado struck on April 14th.

This performance along with our first quarter operating results exemplify what this team is capable of achieving.

Now turning to the first quarter results, our core programs demonstrated solid operating performance as we delivered 16% more commercial airplanes and recognized over 40% higher after market sales for the same quarter in 2011.

Our backlog at over $33 billion continues to illustrate the strong demand for our core products and our development programs transitioning to production.

As the large commercial aircraft market continues to be positive, we remain watchful of global economic and political dynamics, while closely managing our capital spend to support increasing demand for our products.

Now let's talk about some of the specifics across the business during the quarter beginning on slide three.

Fuselage systems delivered solid operating margins of 14% on $623 million in revenue during the first quarter asvolumes across core programs increased.

The fuselage segment 737 high rate production line performed well as the team delivered its 4,000th ship set of the next generation fuselage.

The 787 team made progress by delivering eight airplane fuselage sections in the quarter including the four fuselage number 64.

While we are still early in our cost improvement efforts on the 787, the joint Boeing and Spirit teams continue to track per plan to identify and implement cost improvements across the program through value engineering, supply chain architecture, and production flow.

Fuselage team also continued initial production on the 747-8 program this quarter by delivering the 45th fuselage.

Additionally, in the quarter, the team shipped the first A350 XWB composite fuselage to our Airbus customer in France.

On slide four you see the propulsion team delivered strong operating performance with margins of 16.7% on $344 million in revenue during the first quarter as volumes across the core programs and after market increased.

The propulsion team's core business is strong at high rates as we deliver the 4,000th next generation 737 engine pylon sets and thrust-reversers in the quarter.

The segment 787 team delivered engine pylons for unit number 65.

Progress continues on the 747-8 engine strut production as the propulsion team delivered the 41st ship set.

The propulsion team continues to work closely with our customers in the development phases of several new programs including the 737 MAX, 767 tanker, BR725, Mitsubishi Regional Jet and Bombardier CSeries.

The team is focused on value engineering, supply chain architecture, and production flow to ensure the long-term success of these programs that extend the lives of our core programs and contribute to our diversification strategy.

On slide five you can see the wing system segment which primarily consists of our Europe, Malaysia and Oklahoma operations.

The wing team reported operating margins of 6.9% on $297 million in revenue during the first quarter as volumes increased across core programs, and the segment realized certain supply chain cost challenges on the G280 program.

Spirit Europe continued to produce high volumes of hardware for our Airbus customer, reaching [mine unit] 5,200 for the A320 wing components.

Though [common] team delivered the 4,000th next generation 737 slats and flaps in the quarter.

They also continue to produce hardware for derivative programs including the 43rd 747-8 fixed leading edge wing section and the 64th set of 787 slats in the first quarter.

The segment made progress on development programs as early production efforts continued on the G650 and G280 wing programs and development efforts progress on an A350 leading edge and spar.

On slide six you see an update of our progress to the plant to recover from the tornado at our Wichita facility.

Our top priority was and continues to execute the recovery plan safely.

We are being vigilant in our efforts to ensure the safety of our employees and contractors working on this effort.

Clearly now our priority is to minimize the impact of this event on our customers by bringing the site back to full operations as soon as possible.

This began by returning all employees to work on Monday, April 23rd, just eight days after the tornado.

As I mentioned the team demonstrated remarkable focus and determination to meet this goal.

Their success is a credit to the Spirit team's ability to execute.

Our next priority is to get the site back to full rate production in the near term and recover schedules to fully support our customers.

We are progressing well toward this goal.

Next we plan to recover lost deliveries by the end of the second or the beginning of the third quarter 2012 resulting in zero loss plan deliveries for the year.

Permanent repair of the storm's damage to our buildings and infrastructure will require many months of focused effort, but is not expected to impede production.

Ultimately we plan to complete an assessment of the financial impact of the event and update our financial guidance in our second quarter earnings report.

Now let me turn it over to Phil who will provide more details on our financial results and outlook.

Thanks, Jeff.

Good morning.

I will begin with key financial highlights for the first quarter on slide number eight.

Revenues for the first quarter of 2012 were up approximately 21% as compared to the first quarter of 2011 on the higher volume of large commercial aircraft deliveries.

Operating margins for the quarter were 9.7% including $14 million new program related charges.

This performance reflects year-over-year improvement associated with increased production, after market volumes, and productivity and efficiency in improvements.

The quarterly results reflect positive contributions from the core business as the propulsion and wing segments realize favorable cumulative catch-up adjustments totalling approximately $6 million which is offset by a $6 million unfavorable cumulative catch-up adjustment to forecasted modest cost growth as we close out blocks on the twin out programs in the fuselage segment.

The quarter also includes an $11 million additional forward loss on the G280 program due to additional supply chain costs and a $3 million additional forward loss on the 747-A wing program due to slightly higher manufacturing costs.

Fully diluted earnings per share for the quarter was $.52,d reflecting margin expansion on higher volumes and include a $0.06 per share impact associated with the new program charges during the quarter.

Cash from operations for the first quarter of 2012 was a $12 million source of cash which included a $150 million customer advance related to the A350XWB fuselage program offset by higher taxes and the timing of accounts receivable and accounts payable.

Excluding the $150 million customer advance, cash from operations was $138 million use of cash in the quarter.

Capital expenditures were $54 million for the quarter compared to $42 million during the first quarter of 2011 as investment to new programs and capacity expansion continues.

On slide nine, first quarter R&D and SG&A expenses reflect our continuing disciplined expense management and lower new program related R&D.

Slide ten summarizes cash and debt balances.

Cash balances at the end of the first quarter were $134 million as compared to the fourth quarter of 2011 balances of $178 million.

At the end of the quarter our total debt to capital ratio was 37%.

We continue to pro actively manage the capital structure of the company.

On April 18th2012 we completed a $1.2 billion refinancing of senior secure facilities that included a new $650 million revolving credit facility that matures in 2017 and a new $550 million term loan maturing in 2019.

This refinancing continues to provide the appropriate liquidity and balanced maturity profile for the company as we invest in new programs and capacity expansion for our core programs.

Our U.S.

defined benefit pension plan remains fully funded while we continue to make modest cash contributions to our UK plan.

Slide 11 summarizes net inventory balances at the end of the first quarter of 2012.

Physical inventory balances remain stable so we increased deliveries in the quarter and prepared for additional production increases through the year.

Non-recurring inventory balances increased by $41 million driven by the continuing engineering effort on the A350XWB 800-- excuse me, 900 and the 787-9.

Deferred inventory balances increased by $64 million driven by the initial A350XWB section 15 recurring contract delivery which contributed $39 million in growth.

And we delivered A787-8 which contributed $17 million in growth or approximately $2.1 million per unit.

The 787 deferred inventory growth rates continue to moderate as expected.

Slide 12 summarizes our full year 2012 financial guidance.

As noted in our press released issued earlier today, our 2012 financial guidance excludes any financial impact caused by the April 14th 2012 tornado.

Our primary focus is to minimize disruption and impact to our customers caused by this event.

We are in the process of implementing our stabilization, recovery, and surge plan at the Wichita factory while we work with our insurers.

We are moving quickly and applying the resources necessary to minimize the impact on our customers.

We expect to incur financial impact from this event and will include the impact in our second quarter 2012 financial report, outlook and filings.

As you know, the market for commercial airplanes remains strong, and we are increasing production rates again in 2012 to meet the increased demand.

Based on the current customer demand, our revenue guidance for 2012 is unchanged at $5.2 billion to $5.4 billion.

Fully diluted earnings per share is unchanged and expected to be $2 per share to $2.15 per share.

Cash flow from operations excluding customer advances for 2012 is unchanged and expected to be greater than $300 million.

This is driven by an increased core program volumes, substantially lower repayment of customer advances and slowing inventory growth as we move through the year.

Capital expenditures are unchanged and they are expected to be approximately $250 million as we continue to invest in core program capacity expansion and to appropriately time our investments in new program infrastructure.

Our 2012 tax rate is expected to be between 31% and 32% assuming the U.S.

research tax credit is extended.

Combined R&D and SG&A is expected to be 4% and 4.25% of revenue for full year 2012.

I would now like to turn it back over to Jeff for some closing comments and before we take your questions.

Thank you, Phil.

I will wrap up on slide 13 with just a few brief comments.

Our core business gained momentum in the first quarter and continues to be the strong foundation for Spirit going forward.

We successfully delivered at unprecedented rates and achieved productivity and efficiency gains across our core programs.

While we have experienced a near term setback from the tornado in Wichita we are focused on systematically achieving the upcoming rate increases.

Our recovery plan to take us to full production in Wichita in the near term is robust and achievable.

Looking ahead our position on the best selling airplanes combined with our agility, quality and capability continues to align the business for long-term value creation.

We will now be glad to take your questions.

Thank you.

(Operator Instructions) Your first question comes from the line of Robert Spingarn with Credit Suisse.

Good morning.

Good morning.

Good morning, Rob

Phil, it was discussed last quarter on the call that your earnings power appeared to be something in the neighborhood of $2.40 for this year, and that your guidance of $2 to $2.15 provided some cushion for potential negative cum cashes.

With the results today, this essentially confirms this thinking, $.52 cents GAAP.

$0.58 without the cum cashes.

That being the case, can you offer some specific color on the remaining swing items among the development programs and their relative sizes?

Sure, sure, Rob.

I think the risk profile on the development programs is essentially what we described last quarter.

Of course 787 is a big program which we are doing pretty well on.

So I think that is important to note.

But again it is a big program for us still booking at the zero gross margins, but on plan as of the end of the first quarter here in 2012.

The other programs, I think the A350 wing program given it's early in this development cycle, or maybe mid-first round of engineering here, it is fair thinly margined so I think that one continues to be a watch item for us.

Again don't expect big numbers out of that, that effort.

The G280 is certainly as it moves into production something we are watching closely as supply change challenges are there and they remain there.

I think as we move through this year that will become clear, and I think we did quite a bit of work in the first quarter, and we didn't quite get to where we needed to on some of those supply chain items, but there is still a lot of work to do there on that program.

With the expectation of exiting 2012 with a very holistic view of the program.

747, the wing again, that program continues to be challenging for us .

I don't see big numbers coming out of it, but then again it is some risk as we move through manufacturing with the redesign 747-8 Intercontinental Amfreighter.

So I think those are the usual suspects we've been talking about for quite some time, and we will just have to keep working on them really hard as we move through the year and go

Your next question is from the line of Carter Leake, BB&T Capital Markets.

Please go ahead.

Thanks for taking my call.

Want to zero in on the comment with regard to the tornado activity .

If I hear you right from a delivery perspective, you think you will be able to recover by the end of the year, but still there could be a financial impact.

Could you clarify some of that?

Perhaps speaking to insurance coverage or consequential damages or put some color on to

So let me start, Carter.

First of all I think it is really important to realize that the way the team responded is going to we believe-- and the way we are executing the plan is going to keep all of the deliveries , as we said, in the year.

Frankly if we hit all of our plans we will be keeping them in the quarter.

But there are several outlying areas that have taken a little extra time to get our plans solid.

Obviously it is an area of intense activity for us .

We have extensive insurance coverage , but it does take some time to work through all of the implications of that.

You can imagine with the loss itself and the operational disruption issues, and multiple carriers.

We are being somewhat cautious in projecting that, and we will have a pretty clear view as

Thank you.

And your next question comes from the line of David Strauss with UBS.

Please go ahead.

Good morning.

Good morning, David.

Phil the per production cost on 787, obviously nice progress there.

You have been talking about the crossover, I think somewhere between 100, 150.

It looks like you might get there sooner.

Can you talk about that and then obviously the potential to start taking margin on the program?

Sure.

I echo your sentiment.

It is very good progress.

We are very pleased with where we are at right now.

I think we delivered 64 ship sets .

And we are very happy with how it is going.

We are just going to continue to execute our plan.

We certainly talked about 125 or in that range.

We are working hard to beat that, I can assure you.

We will see where we go through the year and how we continue to progress.

Regarding the margin, when do we come off zero?

Once we can actually forecast sustained profitability and get into that zone we will certainly do that.

Again, I think the program itself is going very well.

Airplanes are in service.

We are happy with our progress both in Wichita and in Tulsa and probably 2012 we will let it play out.

We will know lot more as we sustain the volumes and we will go from there on

Thank you for your question.

Your next question comes from the line of Heidi Wood with Morgan Stanley.

Please go ahead

Hi, it's actually Mike in for Heidi.

Hoping to talk about what drove the charges on the 280 and the 47-8.

You took charges in both programs in 4Q and as historically you haven't wrote down programs in consecutive quarters.

I guess what changed on the cost side between when you reported in February and today?

It sounds like it could have been pretty material to warrant the new charges.

Sure, let me just give you a view.

We are doing several things on the 280 to enhance its long-term run.

And part of that was an intense review of the supply chain itself.

As we got into that review there were a couple areas where we thought the risk associated with hitting the cost curve that we had cast the team with was a higher risk than we had originally assumed.

And we considered frankly taking it from the reserve that we established in the last quarter and thought instead that we would just take it to the program profitability.

Again what Phil said was we have an intense focus on that to get it on the footing for a long-term production run.

And this was one of the steps along the way to get that done.

Thank you.

Your next question is Carter Copeland with Barclays.

Please go ahead.

Good morning.

Good morning, Carter.

Just a question sort of conceptual around the tornado recovery and the relative risk you see to earnings versus cash.

I wondered if you might just talk through the relative size or buckets of things you think you may encounter in terms of cost whether it is poor overhead absorption or logistics related cost from expedited shipping or anything or staffing, or if there are any penalties from the customer that you expect to incur .

And then on the back of that, as you think about cash , could we see that insurance recoveries are a longer term item than the nearer term cash associated with recovery, and there is more relative risk to the cash than the earnings you will

Let me start with that, Carter, and then let Phil chime in.

The way to think about it is clearly a disruptive environment.

Clearly we spent -- we had a week -- basically we had a full week of lost production and deliveries which have to be made up.

Frankly it will need to be made up at premium over time.

The team has diligently set about doing that.

So the way we think about it is a blip on the curve, if you will, that we are working very hard to contain in a relatively short period of time.

Certainly all within this year.

So if you think about the business disruption side it will be there, and we will clearly see it.

But we will keep it contained.

I know of no penalties or anything we would incur from our customers.

Part of the reason for that is how intensely the team has dedicated themselves to getting back to production and to keep the pain inside the -- inside Spirit and not push that pain to our various customers.

So far we have a solid plan to do that.

Clearly a plan that will have some disruptive costs associated with it.

We resumed some shipments within the first few days of some product that we had ready to ship.

And we will be continuing to grow that .

I think we are very near now to full delivery production rate.

We will have to actually surge above the base rate in order to recover.

We will do that obviously with some additional costs associated with that.

Buildings themselves, the infrastructure itself is working doing -- some areas completely restored to where they were before the storm and a few areas are still in a disrupted environment.

We will work our way through that and do complete restoration, and that will take a number of months.

But we think in the next few months we will have a much more clear view of what that -- A, what those costs are and B, what the funding stream of those would be.

Let me let Phil amplify anything that I may have missed in regards to

Hi, Carter.

Like Jeff captured just about all of it.

We are applying the resources to limit the impact to the customer.

That is the most important thing right now as we look forward.

It is a stabilized recover and surge plan to make up the volume for ourselves and so our customer doesn't lose volume, we think we have a path to do that, and we are clearly working very closely with our customers daily as we move through the process to report our progress and work together to make it happen for us.

On the P&L side, all of that says what is described to you is costs over and above any forecast we had in the window.

So as we move through the next eight weeks here, we are capturing the real costs.

We are going to forecast what this recovery looks like and then put that into the P&L .

Of course a lot of that cost we expect to be recoverable through our broad coverage of insurance.

We have some good insurers, names you would recognize that are being very supportive and very appreciative of the work we are doing very rapidly to not lose the volume and to recover the buildings and to not experience any additional impact .

And so that is going to take awhile to forecast the cost to the P&L.

The cash basis, as you know, we are very well capitalized.

Liquidity is not an issue.

Insurers will be doing their jobs as we move through to provide cash as we move the process.

All of that is going quite smoothly.

I don't expect that to be a

Thank you.

Your next question is from the line of Doug Harned with Sanford Bernstein.

Please go ahead.

Thank you, good morning.

Good morning, Doug.

You reported a huge increase in after market sales.

I'm curious, I assume most of this is coming from the sells but can you say how large your after market sales are now, and are you doing something differently that could potentially lead to a larger amount of the after market work going forward?

Well working on after market harder.

I think you are seeing results coming through the efforts that have gone on for the last several years where the team has gone out and actively tried to attract new customers in terms of contracting parts catalog as well as repair maintenance of thrust-reversers.

Our shops are full.

I think we are doing quite well.

We are seeing a nice volume pick up on the after market.

But again I think it is the result of fostering customer relationships over the last couple years.

And as we have expected, and I think as we have articulated our strategy , the more newer next generation aircraft, 777, three 7's move into their maintenance cycles, we expect to see that volume come up.

And I think we are on the front edge of

I would just also say, Doug, I wouldn't characterize our growth there as huge.

I mean, it is clearly a contributor in our propulsion business segment.

Probably to a greater degree -- or not probably but it is to a greater degree than in our other segments.

We are seeing strong execution of the business and the core business as well.

Clearly after market does help, and we are see some growth there.

But I don't see a huge surge over time.

That is a pretty defined market place for us.

And as we said in the past it is a niche business for us.

We want to execute well on and extract the value , but it is clearly limited by the product at this point we are

Thank you.

Your next question is Joe Nadol from JPMorgan.

Please go ahead.

Okay thanks, good morning, guys

Morning, Joe.

My question is on the A350.

You got the advance payment which is nice.

I'm wondering if that was contractual, or if that was a result of negotiations you had based on some of the delays in the program, and if there is more to it, specifically on the 787 you've got an adjustment to the price curve, and I am wondering if any such thing happened on the A350 due to the higher carrying costs of all of your overhead.

Thanks.

Sure, Joe.

It wasn't part of the original contract.

This was something we sat down with Airbus, and as we moved through the development cycle there was various things that fall into change buckets.

We have to discuss the economics on how to settle those.

And this was simply in an economic discussion about cash versus price.

Later as the development programs mature, those change discussions, the volume of them comes up.

And so I think we have had a very good experience with Airbus and we are appreciative of their working relationship with Spirit on not letting these things age and finding a way to settle them very amicably and fairly to both parties.

I am very pleased with the outcome of that.

And I would add to that it's better balanced, out flow that we are experiencing with cash inflow that we are now experiencing.

Thank you.

Your next question is from Cai von Rumohr with Cowen & Co.

Please go ahead.

Yes, thank you very much.

I have a two-part question.

The first part is would you have increased guidance if you didn't have experienced the tornado?

And secondly could you give us a little color on the G650BR725?

How much did the deferred production go up and how is it doing?

Let me answer the first on guidance.

I don't know, frankly, Cai if we would have increased it or not.

You can appreciate the last three -- almost three weeks now have been really focused on recovery, and we sit down and ask ourselves about guidance and felt that given the results of the first quarter and the additional risks we have and -- not the additional risks but the risks we have identified in terms of development programs and now this new event, we basically decided to stay with the guidance we had and work through what could be impact to it -- impact to it.

And we won't know that until the end of the second quarter.

Cai, specifically to your deferred production inventory question, the 650 in the Rolls Royce collectively grew about $15 million.

So there were some offsets.

Our credit balances on other contracts actually increased nicely as well to net out to the $64 million I mentioned in my comments.

Thank you.

Your next question comes from the line of George Shapiro with Shapiro Research.

Please go ahead.

Good morning.

Phil, (multiple speakers) the receivables were up $145 million which caused cash to be a little weaker than what I thought.

Can you explain what happened there, and did that wind up correcting itself in the second quarter?

Sure, George.

It does correct itself as we move through the year.

We always have a timing issue on the receivables given our net ten payment terms with a big customer.

The first quarter there is normal seasonality there as well as there is the growth in the volume coming through the receivable line.

Thank you.

Your next question comes from the line of Sam Pearlstein with Wells Fargo.

Please go ahead

Good morning.

Good morning.

I had a question again on cash flow as well which is you specifically mention that the cash flow from operations outlook of over $300 million excluded the advances.

Are you effectively raising that by $150 million now that we include the A350?

And I guess related to that I know there was some milestone payments for one of the business jets, and does that wait for the actual certification, and are you including milestones in the same bucket as advances?

No, you are correct .

The cash from operations, if we include the advances it goes up by the $150 million.

The business jet programs are not flowing through the advanced line.

They come through deferred revenue.

We will be able to check that for you and make sure that is

Thank you.

Your next question comes from the line of Miles Walton with Deutsche Bank.

Please go ahead.

Thank you.

First, Jeff, on the A350 wing, can you point to the risk reduction you're anticipating on that program?

Is it ultimate load test that gives you a sigh of relief or manufacturer ability?

Is it more you don't sleep at night 'til the flight and then before I get cut off from the operator, also on the 280, at what point do you reevaluate the market size that you are assuming in that accounting block which seems it might be a little high and have to reevaluate that number.

First let me just do the 280 while I am thinking about it.

Actually any reevaluation we are making based on data we have would indicate potential stronger sales on the 280.

We are clearly sticking with the block we have in the window, and we'll see how that unfolds as it gets through its completion of certification and its entry into service.

The wing on the A350, recall that we have two contracts on the A350.

One is for the development.

That's the one that is stressed.

And the second one will be the production.

The risks we see in the window a the A350 wing development program at this point is the additional engineering to complete all of the production drawings.

We think we have that bounded, but it has a little wit of -- bit of risk surrounding it.

Clearly static and fatigue tests may bring something to the forefront that we don't see at the moment.

But we don't anticipate.

All of our internal tests have borne out to -- the strength of that structure.

Right now the risk that we see is some additional clean up or really finishing up the detail engineering.

Thank you.

Your next question comes from the line of Noah Poponak with Goldman Sachs.

Please go ahead.

Hi, good morning.

Good morning, Noah.

Just a follow-up on the cash flow line of questioning, if we take the advance -- the A350 advance out, I believe the use of cash from ops was larger in this quarter than it was the year ago quarter, and then obviously your target for the full year is very significantly higher than where you came in for the full year last year.

Can you walk us back through -- I know you spent some time, but can you walk us back through the quantified big mean buckets of why there is such a steeper ramp in 2012?

Sure.

The core business obviously in volume contributes to the positive side of that equation.

The lack of 787 advances this year -- I'm sorry, advance repayments this year certainly is a big change in cash flows.

Excluding the Airbus payment here, and then we continue to invest.

Of course we expect inventory to grow modestly.

Those are the three biggest components.

And when we add them up we expect to have the seasonality of the first quarter, and then we expect cash recovery probably more in the second half versus the first half.

Can you quantify the 312 versus 11.

I don't have them in front of me, but the 787 lack of repayment is probably well over $100 million.

Thank you.

Your next question comes from the line of Eric Hugo with Stern Agee.

Please go ahead.

That's Eric Hugo Stevens.

Good morning guys.

Hi, Eric.

Can you talk about your recently refinanced your credit facility .

What are the implications there in terms of the interest costs and any covenants, and also real quick is there any exposure to the Hawker if they go

Let me answer the first one first -- or the second one first which is very little if any implication for Hawker.

We had a very small amount of work with them and most of that is moved as you might recall back to them.

Just very little at all.

Nothing material.

And on the refinancing two positive things there.

We have a little better borrowing costs as a result in terms of both the interest rate and the annual fees.

That's positive for us.

And more importantly really longer term is the maturity profile.

Now our big towers of debt which really aren't that big, in the $300 million range.

The first maturity is 2017 followed by a 2019 maturity in the term loans and a 2020 maturity of the next 300 high yield notes.

So moderately favorable economics on the interest side, a big benefit to the company in terms of debt maturities.

All of which makes this an attractive deal for the company.

And I think as we continue to execute a proactive capital structure plan we feel very good about the execution of this refinancing.

Should there be a change to the interest rate?

To the interest on a quarterly basis?

It will be modestly more favorable.

Thank you.

Your next question comes from the line of Peter Arment with Sterne Agee

Yes, thank you.

Good morning, Jeff and Phil.

Good morning.

Jeff, maybe you can give us a run down on the 77-9, how much of the design engineering has been released at this point, and how you see that progressing in the schedule and how things look in general and that?

Thanks.

Sure, first of all let me start by saying it is on schedule.

It is performing well.

Our design team is integrated with customer's design team there.

That's actually part of our strategy on bringing the overall cost of the production of the 787 down.

So as much as we can we are doing -8, -9 commonality with better efficiency.

We are between 25% and 40% released depending on which of our components.

Again doing very well staying on the schedule.

Thank you.

Your next question is from the line of Michael Ciarmoli with KeyBanc Capital.

Good morning, thank you for taking my question.

Good morning, Michael.

A lot of my questions have been asked.

If we can talk about the 737 MAX and what sort of time line is there, what you are seeing in the form of maybe capital requirements and maybe scope changes or I am not sure if it is too early, but if you can give us an update on that program?

I will be very general because we still are early in the program.

I think there are a couple of points that I want to make.

The first is again the high level of integration we have on the program teams early in the development of that derivative.

Clearly a new engine pylon/strut is required for a new engine-to-wing interface and (inaudible) cell, with incumbent on the thrust-reverser engine strut.

Those will be new clean sheet developments.

And then any major change at the wing drives back into the fuselage a lot of loads.

We think -- with the customer we think we have a general scope of that.

Again it will be a derivative.

And much, much of the capitalization throughout the supply chain including Spirit will be usable to the capital and the flow lines and the skin lines and all of those sorts of things.

We are anticipating a controlled change environment, not unlike other major derivatives .

Probably one of the biggest derivatives we have done on the 737 .

But a very tight relationship with the customer, a clear line to input our thoughts on what it takes to keep the airplane highly producible , but early to be specific about releases and flows and capital requirements and so on.

Realize that also the impact of production rates of the existing program as we bring a new derivative like the MAX into the line.

It will have impacts and we don't know how big yet, and that

And let me just amplify that.

This is a great outcome for Spirit.

MAX extends our core business for a longtime into the future.

As we move through it we should look at the positive nature this has on the company.

Operator.

We have time for one more call.

Sure.

Your next question and last question is from the line of David Strauss with UBS.

Please go ahead.

Thanks.

Just as a follow-up , Phil, back on the 3rd you moved up $60 million or so in the quarter.

You are looking for -- I think your guidance was to move up $300 million.

That is still roughly what you are looking at even though 787 is obviously coming in pretty well here, and if so how do you get the $300 million built

Not pointing to an exact number for you, David but 787 is doing well.

350 as we deliver more units on the recurring contract this year we will bill the deferred as well as the initial additional production of the G650 280BR 725.

Those will all be add together deferred balances through the year.

Thank you, ladies and gentlemen.

This concludes the presentation for today and thank you for your participation.

You may now disconnect and have a good day.