Defense Work Offers New Opportunities For Spirit AeroSystems

Jun 19, 2020

2020 has not been kind to aviation manufacturer Spirit AeroSystems. The continued grounding of the Boeing 737 Max — the company's most important program — was compounded by a near shutdown of commercial air traffic because of the pandemic. That has resulted in thousands of layoffs at Spirit since January, along with furloughs and pay cuts.

Despite the drumbeat of bad news, Spirit has consistently remained optimistic when discussing one topic: its defense programs.

Spirit says about 15% of its revenue comes from defense work. It wants to grow that number to 40%.

The company already is part of the new B-21 bomber supply chain and has acquired one company and is in the process of acquiring another that does defense work.

"I'm pleasantly surprised as it relates to the number of new work opportunities that have been coming our way on the defense side," Mark Suchinski, Spirit's senior vice president and chief financial officer, said on an earnings conference call last month.

Steve Trimble is the defense editor for Aviation Week. He has covered aviation and the defense industry for nearly 20 years.

He talked with Tom Shine and The Range about Spirit's efforts to grow its defense business, what makes the company attractive to defense contractors and whether defense work is more stable than the commercial aviation industry.

The interview was edited for length and clarity.

Can you start by talking a little bit about defense spending in general? How much money is out there and who would be the big players in that pool?

There's a lot of money in defense. The defense budget at the moment is in the $730 billion range, thereabouts. The biggest defense contractor in the world is Lockheed Martin, and you've got Boeing and their defense division not too far behind. Northrop Grumman is another big player, with other companies like Raytheon, General Dynamics.

There are quite a few companies in that group, but few with the sort of capacity and industrial wherewithal of Spirit AeroSystems.

Spirit says ... that defense work makes up about 15% of their revenue and they want to grow that to about 40%. Is that realistic?

I'd say it's realistic. I mean, right now, at 15%, that makes them sort of a billion-dollar … company in the defense market. To go up to 40% at their current level of revenue would make them more like a $3 billion company in the defense market. And that should be achievable.

Obviously, you know already [Spirit] does some work on defense programs, notably the KC-46 tanker … Does that experience position Spirit better for more work in the future?

I think the things that really make Spirit AeroSystems stand out in the defense market was the win on the B-21 program. And also their commercial scale.

In the defense market … the trick is you're talking about really highly optimized, almost a handmade-type structure for very, very advanced aircraft or missiles. Spirit AeroSystems has the ability … to come in as sort of a hybrid model with very advanced manufacturing capabilities, but that could produce very high volumes, which lowers the [costs]. And that makes them really interesting for certain programs that are coming down the line.

The B-21 is … still in the development phase. They're about to start ramping up production, and as they ramp up production, Spirit AeroSystems is going to get a lot of revenue from that. There's a huge demand for bombers. So there's only an upside for that program at the moment.

Steve Trimble of Aviation Week
Credit Courtesy photo

When people talk about defense work, they assume that it's steadier than commercial work; there's fewer downcycles, fewer dips. Is that true?

I wouldn't say there's [not] downcycles, but there is some insulation. For example, the COVID-19 crisis. What happens in the commercial market? All of the airlines dropped their orders. They stopped flying. Everything immediately and very abruptly changes.

In the defense market, nothing changes. Everything pretty much goes on as before, for at least a little while. Now, you might see in two or three years the fiscal effect of the economic stimulus and the COVID-19 impact on the economy. That's going to put some new constraints on how much we can actually spend.

But the effect of things like this doesn't show up for another two or three budget cycles. So there's some insulation into long-term planning that you can do to shift your resources.

The Space Force is coming on board here soon. Is there going to be defense money available … for the Space Force?

[Spirit] announced in February the acquisition of a company in Maine called FMI ... What they do are the very sort of exquisite types of thermal protection systems and high-temperature composite materials that you would use in rockets; very, very advanced missiles, hypersonic missiles.

So Spirit AeroSystems has sort of put themselves in a position for at least on the launch side of what the Space Force might be doing.

But certainly for the new kinds of weapons that are of great interest right now across the [Department of Defense] … They all want new hypersonic missiles, and they can't get them fast enough, pardon the pun. And FMI puts [Spirit] in a pretty good position.

Not only FMI, but also the coupling of what FMI does ... with Spirit AeroSystems' manufacturing capacity and scale makes that really interesting to the defense department right now because they're essentially inventing a new supply chain for this new class of hypersonic weapons.