Subsequent Event (Notes)

3 Months Ended

Apr. 02, 2020

. Subsequent Events

April 2020 Amendment and 2025 Notes

On April 13, 2020, the Company entered into the April 2020 Amendment to the 2018 Credit Agreement, which became effective on April 17, 2020. On April 17, 2020, the Company issued the 2025 Notes. For more information on each of these items, please see Note 15, Debt.

Rights Plan

On April 22, 2020, the Company’s Board of Directors declared a dividend of one right (a “Right”) for each outstanding share of Common Stock held of record at the close of business on May 1, 2020 (the “Record Time”), and adopted a stockholder rights plan, as set forth in the Stockholder Protection Rights Agreement, dated as of April 22, 2020 (the “Rights Agreement”), between the Company and Computershare Inc., as Rights Agent. The Rights will be payable upon the later of the Record Time and the certification by the New York Stock Exchange to the Securities and Exchange Commission that the Rights have been approved for listing and registration.

Generally, the Rights may cause substantial dilution to a person or group that acquires 10% (or 20% in the case of a passive institutional investor) or more of the Common Stock unless the Rights are first redeemed or the Rights Agreement is terminated by the Board. While the Rights will not prevent a takeover of the Company, they may discourage a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. Nevertheless, the Rights will not interfere with a Board-approved transaction that is in the best interests of the Company and its stockholders because the Rights can be redeemed, or the Rights Agreement terminated, on or prior to the consummation of such a transaction. Prior to exercise, the Rights do not confer voting or dividend rights.

Airbus Production Volumes

On April 8, 2020, the Company received a supplier letter from Airbus, which provided information related to expected future production rates as a response to the significant disruption to global travel caused by the COVID-19 pandemic.

The overall rates announced by Airbus are as follows:

▪Single-aisle average production volume of 40 APM

▪A350 average production volume of 6 APM

▪A330 average production volume of 2 APM

These rates are based upon a “mid-term plan” that extends through August of 2020, with additional conclusions regarding the long-term production plan expected to be resolved later in the second quarter. Due to these reduced production volumes, the Company expects lower amounts of revenue and gross profit as deliveries decrease below levels in previous periods.

The Company is currently evaluating the potential impact to the A350 program, and based on its preliminary assessment expects to incur an incremental forward loss of approximately $15 to $20 in the second quarter of 2020. As a result of the uncertainty which exists regarding specific production rates, timing, duration and the Company’s actions it may take to recalibrate its cost structure in response to lower production volumes, the amount of forward loss the Company will incur in the second quarter of 2020 may be materially different than the range indicated above.

Boeing Production Volumes

On April 29, 2020, Boeing announced the following changes to its expected future production rates as a response to the significant disruption to global travel caused by the COVID-19 pandemic.


•	B737 MAX resume at low rates in 2020, and gradually increase to 31 APM during 2021


•	B787 average production volume of 10 APM in 2020, and gradually decrease to 7 APM by 2022


•	B777 average production volume will be reduced to 3 APM in 2021

On February 6, 2020, Boeing and the Company entered into the 2020 MOA providing for delivery to Boeing of 216 B737 MAX shipsets in 2020. On May 4, 2020, Boeing and the Company agreed that Spirit will deliver 125 B737 MAX shipsets to Boeing in 2020, rather than the previously announced 216 shipsets. The 125 shipsets to be delivered in 2020 includes shipsets

Spirit has delivered to Boeing since January 1, 2020. The Company is working with Boeing to define the specific impacts of these production rate changes, including the timing, duration, model mix, and any potential pricing impacts and anticipates conclusions will be reached later in the second quarter. Due to these reduced production volumes, the Company expects lower amounts of revenue and gross profit as deliveries decrease below levels in previous periods.

The Company is currently evaluating the potential impact to the B787 program, and based on its preliminary assessment expects to incur an incremental forward loss of approximately $70 to $90 in the second quarter of 2020 due to the impact of reduced production volumes and the corresponding amount of fixed overhead absorption applied to lower deliveries. Additionally, the Company will evaluate the impact of the expected lower production volumes of the B777 program, which may result in incremental forward losses on other Boeing programs. As a result of the uncertainty which exists regarding our customer’s specific production rates, timing, duration and the Company’s actions it may take to recalibrate its cost structure in response to decisions our customers make, the amount of forward loss the Company will incur in the second quarter of 2020 may be materially different than the range indicated above.

Additional Workforce Actions

On May 1, 2020, Spirit announced various employment reduction actions in light of customer production rate reductions. Such actions included a voluntary layoff program that was offered to union represented employees in Wichita, KS, a reduction of 1,450 employees in Wichita, KS, and additional reductions at other Spirit locations. Spirit's work on defense programs is expected to continue uninterrupted.