Spirit AeroSystems - Q2 2020
August 4, 2020
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to the Spirit AeroSystems Holdings, Inc.'s second quarter 2020 earnings conference call. My name is Debbie, and I'll be your coordinator today. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the presentation over to Ryan Avey, Director of Investor Relations. Please proceed.
Ryan Avey (Director of Investor Relations)
Thank you, Debbie, and good morning, everyone. Welcome to Spirit's second quarter 2020 earnings call. I'm Ryan Avey, Director of Investor Relations, and with me today are Spirit's President and Chief Executive Officer, Tom Gentile, and Spirit's Senior Vice President and Chief Financial Officer, Mark Suchinski. After opening comments by Tom and Mark regarding our performance and outlook, we will take your questions. In order to allow everyone to participate in the question-and-answer segment, we ask that you limit yourself to one question, please. 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 earnings release, in our SEC filings, and in the forward-looking statement at the end of this web presentation.
In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of non-GAAP measures we use when discussing our results. As a reminder, you can follow today's broadcast and slide presentation on our website at investor.spiritaero.com. With that, I would like to turn the call over to our Chief Executive Officer, Tom Gentile.
Tom Gentile (President and CEO)
Thank you, Ryan, and good morning, everyone. Welcome to Spirit's 2022 second quarter earnings call. We continue to see the impact of the two challenges of the MAX grounding and COVID-19 on the global aviation industry. While still grounded, it was encouraging to learn about the successful MAX certification flights and the subsequent comments issued by the FAA that demonstrate progress toward returning the MAX safely to service. Spirit is a proud partner on the MAX program. We supply 70% of the structure of the MAX, and it has historically represented 50% of our revenue. On June 19th, Boeing directed us to produce 72 units this year, down from the previous rate of 125 for 2020 and the 606 units that we produced in 2019. We continue to monitor rates closely with our customer.
Once the MAX is safely back in service and Boeing has a better view of their delivery schedule, we will work with them to determine the right level of production in 2021 and beyond. COVID-19 remains a significant challenge to the aviation industry. There has been a major impact to airlines, with a steep drop in global passenger traffic that fell by more than 90% in April and May compared to last year. Currently, most industry analysts expect recovery to take several years, with domestic travel rebounding first, followed sometime later by recovery in international travel. According to IATA, airlines around the world have lost more than $415 billion of revenue in 2020 and more than $85 billion in profits. At one point, more than 16,000, or 65% of the global installed fleet, was grounded.
Airlines are deferring deliveries given their economic position, which is impacting production rates on all programs for both Boeing and Airbus. In the short term, we are likely to see continued turbulence, and we'll have to navigate our way through the uncertainty. However, in the long term, we believe the aviation industry is resilient and will return to robust growth. Projections for long-term air traffic are still strong, and both Boeing and Airbus each retain a significant backlog. While many layers of uncertainty remain, the impact of the COVID-19 pandemic continues to be felt on many industries and alters everyone's lives.
Given the very dynamic nature of what we are experiencing and the fact that both Boeing and Airbus completely stopped all production for a period of time during Q2, our Q2, Q2 deliveries decreased by 88% from 2019 and 51% from Q1 2020, which have had a negative impact on our financial condition. In response, we have focused significant energy on reducing our costs to align with these lower levels of production and preserving liquidity. Since the beginning of the year, around the world, we have reduced the headcount of our commercial aviation programs by more than 8,000 people, or about 44%. Earlier in the year, we announced layoffs in Wichita and Tulsa of 3,200 employees. We also eliminated more than 200 contractor positions.
In addition, we implemented a voluntary retirement program, which reduced our workforce by more than 850 employees. We have also put salaried employees on a four-day workweek through the remainder of the year and reduced executive compensation by 20%. When Boeing and Airbus announced full production suspensions in March, April, and June, we initiated furloughs for thousands of hourly workers associated with those programs. We also announced permanent layoffs for an additional 1,400 people in May. In July, we also decided to reduce the Kansas and Oklahoma workforce by an additional 1,100 people. These were all difficult decisions. In addition, we have cut non-labor costs significantly in line with the production cuts. We have also been assessing our global footprint and machine capacity. In mid-July, we made the difficult decision not to renew the San Antonio, Texas, facility lease.
This site was acquired in July 2019 from AIT. It manufactures parts for the 787 and the MAX programs, as well as for other defense and commercial customers....Over the next few months, the team will work to ensure an orderly transition, using our established transfer processes to move work to other Spirit sites or suppliers. We will continue to assess our remaining capacity and take the necessary actions to adapt to the current environment. In total, on an annualized basis, labor and non-labor, we have taken out more than $1 billion of costs, or 40% of the non-material base of our business. During this period, when production rates are low, we are also taking additional actions to drive productivity and efficiency.
One major initiative is our new Global Digital Logistics Center, which has consolidated more than 450,000 sq ft of warehouse space on our campus into a highly concentrated area of 156,000 sq ft. The facility can hold more than 2 million parts for all of Spirit's Wichita-based programs and will be a key asset, capable of processing thousands of parts and kits per day when production returns to higher levels. A second major initiative is an effort to reconfigure our 737 final assembly line. We are shifting sub-assembly work out of our main production facility into different locations that enable more lean and efficient operations. One example is the wing box of the 737 fuselage, which we are transferring to our Tulsa facility.
The second example is the 737 forward fuselage, which will move into a Forward Fuselage Center of Excellence on our Wichita campus. Both of these moves will free up space in our main production facility and enable more lean operations. We are also developing a new automated production line using Spirit proprietary technologies to improve the assembly of single-aisle airplane floor beams. The project is estimated to take a current cycle time of more than 7 days per assembly, down to just hours for that same assembly. The project will also facilitate a significant reduction in work-in-process inventory and reduce the required footprint by more than 6,000 sq ft. In our Airbus operations, we are implementing an enhanced composite spoiler production line that saw the completion of its first pre-production shipset this quarter. Each A320 has 10 spoilers.
This highly automated line is expected to reduce the cost of each spoiler shipset by 30%. The Prestwick team is targeting to have first part qualification components started in August, followed with a trial fit of the spoilers at the Airbus Broughton facility at the end of September. On the quality front, we also have a number of exciting initiatives in various stages of development that will drive many benefits as we increase production rates. One example is a blue light scanner that is capable of inspecting the fuselage skins for many attributes, including fastener location, hole location, and fastener head height. The scanner method is estimated to reduce the 767 fuselage skin inspection time by over 7 hours from the manual process and will allow us to send data digitally, directly to our customer.
Another example where technology will enhance our inspection processes over a large surface area is a system being developed on top of Spirit's cognitive robotics platform. The system will scan entire sections of a fuselage, store the results in a database, and generate automated inspection results that can be used for predictive analysis and process control. We are also taking this time of lower production to improve our inspectors' work instructions. We are overhauling our instructions to develop clear visual guidelines to highlight what should be inspected, the tools needed for that inspection, and the location on the airframe. The new visual instructions are a great improvement that will drive a reduction in inspection cycle times.
Our plan is to continue to evaluate and implement similar initiatives in this time of lower production rates, so that when commercial air travel does begin to recover, we will be able to maintain Spirit's position as a leading aerostructure supplier to Boeing, Airbus, and our defense customers. We also continue to grow and diversify. The Spirit team continues to demonstrate our strong value proposition to our defense customers. For example, we recently achieved a production milestone with the tenth CH-53K production fuselage delivery. The team continues working at a steady pace during this low rate initial production phase to fabricate the composite forward fuselage and assemble the whole fuselage with parts from other suppliers. We are a proud Sikorsky partner in support of the Marines and their missions, requiring transport of more than 27,000 pounds of payload with this heavy-lift helicopter.
In June, we hosted a visit by the U.S. Air Force Secretary, Barbara Barrett. That same day, Spirit was awarded an $80 million contract allocation through the Defense Production Act, Title III funding provisions. The contract will allow Spirit to expand its domestic production capability and capacity for advanced tooling, composite fabrication, and metallic machining, as well as enable us to maintain and protect critical workforce capabilities caused by the COVID-19 disruption. We've been able to start work on projects related to the $80 million, and we'll see some benefit in 2020. However, we'll see a larger impact over the next few years. The defense pipeline is strong, and we continue to be actively engaged in discussions with the defense primes on how to leverage the available capacity at Spirit to support them.
We are positioned and ready to compete for new growth opportunities to support the Spirit defense business. We also recently announced two exciting new agreements. The first agreement was with Virgin Hyperloop. This collaboration will leverage Spirit's engineering, certification, supply chain, fabrication, and assembly capabilities to assist in Virgin Hyperloop's development of a new mode of transportation that can travel at speeds of up to 700 miles per hour using electric propulsion through a low-pressure tube. The second agreement was with Aerion, which expanded our partnership for design to production of the forward fuselage for the AS2 supersonic business jet. This partnership is another exciting opportunity for Spirit to work with a company on the leading edge of development in the aviation industry. Our composite engineering and production leadership fits well with the development of the forward pressure fuselage for the Aerion AS2 program.
We look forward to continued collaboration and innovation with both companies to move these products forward in their development. Also, I wanted to share an update on how we are helping our nation combat the global COVID-19 pandemic. We are working with Vyaire Medical, the largest pure-play respiratory company in the world, to produce ventilators for global distribution. To date, we have produced and shipped thousands of ventilators to the U.S. Strategic Stockpile, U.S. customers, and customers around the world. We now have over 800 workers assigned to the project and the capability to produce over 300 ventilators per day. The new factory that we have established will help Vyaire Medical fulfill their order of producing over 22,000 ventilators for the U.S. government and fulfilling other orders around the world. Spirit continues to increase our ventilator production rate on a steady pace.
This project demonstrates the transferability of Spirit's capabilities in design engineering, industrial engineering, supply chain management, fabrication, complex assembly, and functional system and testing to the manufacturer of other highly sophisticated products. Our other efforts to grow and diversify are the two acquisitions that we have announced. We continue to see the long-term strategic value in both the ASCO and Bombardier Aerostructures acquisitions, and remain engaged in discussions with both parties on the conditions needed for closure of those deals. The long stop date of the ASCO acquisition agreement is October first. We are still working to meet the conditions of the European Commission on that deal. The long stop date for the Bombardier acquisition agreement is October thirty-first. We continue to work with Bombardier to meet those conditions precedent, some of which remain outstanding.
With that, I'll ask Mark to lead you through a detailed second quarter 2020 financial review. Mark?
Mark Suchinski (SVP and CFO)
Thank you, Tom, and good morning, everyone. I hope everybody is well and staying safe. As Tom mentioned in his opening remarks, Spirit, as well as the overall aviation industry, has been significantly affected by COVID-19's impact to global passenger traffic and demand for aircraft. We have continued to adjust as our customers have reduced their production rates, and we will continue to make every effort to adapt our cost structure to lower production levels to ensure that Spirit remains financially healthy during this crisis. Now, let's move to our second quarter results. Please turn to slide four. Revenue for the quarter was $645 million, down 68% from the same quarter last year. This reduction was primarily due to the lower production rate on the 737 MAX, resulting from the continued grounding of the program and the significant impacts of COVID-19 pandemic.
Production rates across all of our commercial programs were negatively impacted by COVID-19 and the shutdown of commercial airplane production at Boeing and Airbus facilities for several weeks during the second quarter. We delivered 19 737 shipsets this quarter, compared to 147 in the same period of 2019. Overall deliveries decreased to 159 shipsets, compared to 449 shipsets in the same quarter last year. Let's turn to earnings per share on slide five. In the quarter, we reported earnings per share of -$2.46, compared to $1.61 per share in the same quarter last year. Adjusted EPS was -$2.28 per share, compared to positive EPS of $1.71 in the same period of 2019.
Second quarter adjusted EPS excludes the impacts of planned acquisitions, restructuring costs, and the non-cash voluntary retirement plan charges. The second quarter operating margins declined as a result of costs incurred related to the Boeing-directed 737 MAX production suspension and subsequent low rate of production, as well as impacts of COVID-19 pandemic and the associated production shutdowns at Boeing and Airbus. We recognized excess capacity costs of $83 million and normal production costs related to COVID-19 of $19 million, restructuring expenses of $6 million for cost alignment and headcount reductions, and loss on disposals of $23 million related to certain long-lived assets on the Boeing 787 and Airbus A350 programs. Further, we recognized a non-cash charge of $15 million, resulting from the voluntary retirement program that was initiated during the first quarter of 2020.
In addition to the expenses I just described, we also recognized forward loss charges of $194 million during the quarter, primarily driven by lower future production rates announced on the 787 and A350 programs, as well as unfavorable cum catch adjustments of $38 million related to the recently announced production rate cuts on the majority of our other commercial airplane programs. You may recall, as part of the last quarter's earnings review, we provided preliminary forward loss estimates resulting from the lower production rates announced by Boeing and Airbus. These estimated forward losses were based upon data which became available after the first quarter balance sheet date of April second, 2020.
Throughout the second quarter, the dynamic of demand for wide-body aircraft continued to evolve from the facts and assumptions originally made as a result of the uncertainty regarding the timing and resolution of COVID-19, and the ultimate impact on the aviation and travel industries. We evaluated additional schedule and production demand information, as well as other market and analyst data, and as a result, adjusted the expected results on the 787 and A350 programs to include a lower rate of production for a longer duration compared to the previous forecast.
This change in judgment from the first quarter resulted in a negative impact of fixed cost absorption on the 787 and A350 programs, and as a result, the forward loss recognized for the second quarter of 2020 were $103 million on the 787 program and $84 million on the A350 program. Our year-to-date tax rate is approximately 38%. As a result of the passage of the CARES Act, we have an opportunity to carry back our anticipated 2020 net operating loss to years where we paid tax at a rate of 35%. The CARES Act net operating loss benefit, and the impact of state tax credits, resulted in a favorable year-to-date tax rate compared to our expected normalized rate. Now, turning to free cash flow on slide six.
Free cash flow for the quarter was a use of $249 million, compared to a source of $192 million in the same period of 2019. This year-over-year decrease is primarily due to the negative impact of working capital requirements and significantly lower deliveries across all of our commercial airplane programs. Excluding the $215 million of Boeing advanced payments received in the first quarter, free cash flow improved by $325 million from the first quarter. This quarter-over-quarter improvement was a result of a decrease in working capital requirements, a reduction in capital expenditures, as well as the cost reduction actions we have taken throughout the first half of the year. We expect to realize further benefits from these cost mitigation actions, which were required to align our cost base to the new lower production rates.
We anticipate cash flow usage to continue to improve in the third and fourth quarters. However, as a result of lower production rates due to COVID-19, we expect our cash use to continue for the remainder of the year. As Tom mentioned, we have focused significant energy on reducing our costs to align with lower levels of production and to preserve our liquidity. In addition to the actions already discussed, we are taking advantage of the CARES Act to provide additional liquidity flexibility, as we have elected to defer the payment of employer taxes, payroll taxes, of which 50% is required to be paid in 2021, and the remainder in 2022. We will continue to evaluate and take the necessary steps to adjust our cost base in order to minimize cash spend in light of the challenging environment.
Additionally, we previously announced the need to revise our debt covenants as we projected a potential breach in the fourth quarter of this year. Over the last few weeks, we have worked tirelessly with our banking groups and finalized the amendment on July 31st. The amendment provides covenant relief through 2022. Additionally, as part of the terms of the amendment, the available revolver decreases to $500 million, and we have paid down $100 million of the term loan. We appreciate our bank group's support throughout the process of amending our credit facilities. We ended the quarter at $1.9 billion of cash. We believe our liquidity is sufficient to complete the acquisitions, if the conditions of both deals are met, and fund our operations over the next twelve months. Now, let's turn to our Fuselage segment performance on slide seven.
Fuselage segment revenue in the quarter was $327 million, down compared to the same period of 2019, primarily due to lower production volumes on the 737, 787, and A350 programs. Operating margin for the quarter was -77%, compared to 12% in the same period of the prior year. The segment recorded $31 million of unfavorable cumulative catch-up adjustments and $155 million of net forward losses. The decrease in segment profitability and operating margin was primarily a result of forward losses recognized in the 787 and A350 programs.
Lower profit recognized on the 737 program, including excess capacity costs of $100, or $51 million, as well as abnormal costs related to COVID-19 of $11 million, and loss on disposals of $23 million related to certain long-lived assets on the 787 and A350 programs. If we turn to the propulsion segment performance on slide eight, in the second quarter, propulsion revenue was $170 million, down compared to the same period of the prior year, primarily due to lower production volumes in the 737 program. Operating margin for the quarter was -10%, compared to 19% in the same quarter of 2019. The segment recorded $5 million of unfavorable cumulative catch-up adjustments and $16 million of net forward losses.
The decrease in the segment profitability and operating margin was primarily a result of forward losses recognized in the 787 program, lower margin recognized on the 737 program, including excess capacity costs of $18 million, as well as abnormal costs related to COVID-19. Now, let's turn to wing segment performance on slide nine. During the second quarter, wing revenue was $123 million, down compared to the same period last year, primarily due to lower production volumes on 737, A320, and the A350 programs. Operating margin for the quarter was -35%, compared to 14% in the same quarter of 2019. The segment recorded $2 million of unfavorable cum catch adjustments and $23 million of net forward losses.
The decrease in segment profitability was primarily a result of forward losses recognized in the 787 program, lower margin recognized on 737, including excess capacity costs and abnormal costs related to COVID-19 of $19 million. In closing, these last several months have been very challenging, and we have had to make some very difficult decisions. While the dual challenges of the MAX grounding and COVID-19 are out of our control, we are taking the necessary actions to adapt to the rapidly changing environment. As we have demonstrated throughout this year, we quickly implemented cost mitigation actions, and we are constantly assessing our business against the current environment and potential future scenarios, identifying areas of improvement and developing plans for various scenarios. The second quarter was one of the toughest quarters in our history.
As we continue to move forward, our focus is on addressing the challenges that remain ahead of us over the next couple of years. With that, I will turn it back over to Tom for closing comments.
Tom Gentile (President and CEO)
Thanks, Mark. The COVID-19 pandemic has resulted in a significant reduction in air traffic that has had a major impact on airlines and aircraft production. It will take several years for production to resume to the previous levels of 2019. We will also continue to support Boeing as they work with the FAA to return the MAX safely to service. In the meantime, our focus remains on managing our costs to align with the lower production rates and preserving liquidity through these uncertain times in our commercial business. Our team is making great progress to adapt with new, better ways of working, while continuing to keep all of our employees safe and healthy.
We also see opportunity to expand our defense business and leverage some of our open capacity to demonstrate our unique capabilities to customers willing to partner with a team that has decades of design and manufacturing experience. While we will have course corrections as we navigate through the turbulence of COVID, we are confident in the resilience of the Spirit team. Our focus will be to maintain sufficient liquidity and continue to adjust operations to the evolving environment. With that, we will be happy to take your questions.
Operator (participant)
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Please limit yourself to one question. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Jon Raviv with Citi. Please go ahead.
Tom Gentile (President and CEO)
Jon, are you on mute?
Jon Raviv (Senior Analyst)
Can you hear me?
Tom Gentile (President and CEO)
Yeah, now we can hear you.
Jon Raviv (Senior Analyst)
Sorry about that. No, thank you. Tom and Mark, can you just go over some of the things we talked about in terms of liquidity? So first of all, cash breakeven, I think previously you were talking about mid-2021. Should we expect cash use to continue through all of next year as well now? And then also, you mentioned that you, you know, you feel good about liquidity for supporting operations for the next 12 months. You know, what, you know, at what point over the next 12 months do you have to decide if you have to do something more from a liquidity perspective? Do you need to go back to the market? And, and does renegotiating M&A play any role in that? I know your covenant changes mentioned that topic as well.
So a big question on cash and liquidity. Thank you.
Tom Gentile (President and CEO)
Right. So I'll start, and then Mark can add on. But in terms of cash flow, we did say at the last call, based on the production levels that we had at that time, that we thought we would start to get into cash flow positive in 2021. With the reduction on the 737 from what was 125 down to 72, it's going to push that out. So we expect next year, the cash burn will be significantly less than it was this year, but it will still be a cash burn. But we are looking at 2022 as when we will be cash flow positive again. Now, in terms of cash operations and liquidity position, Mark did mention that our liquidity position is good for 12 months.
We, we don't expect that we will get to a position where we would need to raise additional capital based on the current projections and the scenarios that we have. But we, we have a very clear line of sight to the 12 months. It actually goes beyond that, but we just wanted to bound it by saying it's, it's, it's very solid for the next 12 months, even if we included the, the full amount of the deals that are currently under consideration. Mark, anything else to add?
Mark Suchinski (SVP and CFO)
No, I think Tom covered it. You know, we have a line of sight to the liquidity needs over the next 12 months or so. We do have access to capital markets if needed, and that's a lever that we can pull if we need to, at some point in time in the future. But based on the current production rates, I think Tom summarized our situation pretty well.
Jon Raviv (Senior Analyst)
Thank you.
Mark Suchinski (SVP and CFO)
Thanks.
Operator (participant)
The next question comes from Greg Conrad with Jefferies. Please go ahead.
Greg Conrad (VP and Equity Analyst)
Good morning.
Tom Gentile (President and CEO)
Morning.
Greg Conrad (VP and Equity Analyst)
Tom, you announced a number of initiatives in the prepared remarks. I mean, if we look at Q2, there were several costs around forward losses, abnormal costs, and excess capacity costs. With these initiatives, how do we think about areas such as the latter two going forward? Is there a normalized margin target at these lower production rates?
Tom Gentile (President and CEO)
Right. Well, we did have all of these abnormal events based on the lower production, which drove the forward losses, and with the 737 in a much reduced production capacity, that also drove some abnormal costs. The cost actions that we've taken are meant to offset that and to really align the business to these lower levels of production. Our goal with all the initiatives that I described is to continue to improve the productivity and the efficiency of our operations, so that when production rates do return to higher levels, we'll be more productive and be able to achieve higher levels of margin, all things being equal. So if you recall, last year, when we were at 52 rate of production, our targets for margins were 16.5%, and our cash flow targets were 7%-9%.
Now, our goal would be to get back to those levels of margin and cash flow when, say, the MAX gets back to the 40s in terms of production rate. Now, that's about where we were in 2016. Of course, in 2016, we also had much higher rates of 777 production, which we won't have this time around. But again, the goal of all those productivity initiatives was to reset the business so that we can be more profitable with better margins at lower rates of production. And we would see a return to our previous targets when we get into the 40s on MAX production, along with all of the other projections for the different programs of Boeing and Airbus and Defense.
Greg Conrad (VP and Equity Analyst)
Thank you.
Operator (participant)
The next question is from Seth Seifman with J.P. Morgan. Please go ahead.
Ben Arnstein (Executive Director)
Hey, good morning. This is actually Ben Arnstein on for Seth.
Tom Gentile (President and CEO)
Hey, Ben.
Mark Suchinski (SVP and CFO)
Morning.
Ben Arnstein (Executive Director)
Hey, I was hoping if you could kind of give us a little bit more color and some insight onto how you're thinking about the MAX production ramp? The production rate, you know, through the end of the year is implied at about 5-6 units per month. And so I guess, how do you kind of think about your ramp back up and your production system for a target, maybe 1 or 2 years from now?
Tom Gentile (President and CEO)
Right. Well, one of the things is we've aligned our 737 employment levels to a production rate of about 7. So the 72 aircraft order that we have from Boeing for 2020, when you look at the months that are involved, it aligns to about 7 aircraft per month. Now, Boeing announced its own production rate targets on its earnings call. We will lag them a little bit because, as you know, we have shipsets that are stored on our campus, fuselages, plus thrust reversers, pylons, wing slats and flaps, and so forth. We've got about 130 of those stored. The goal is to burn that buffer off over the next 24 months, which will mean that we'll lag Boeing by about 5 aircraft per month during this ramp build.
But the good news is that buffer will give us a chance to manage our production increases in a more methodical way. So, Boeing has some pretty sharp production rate increases over the time period. Because we have that buffer, we'll be able to smooth it out a little bit. The goal is, at the end of that 24 months, we'll have about 20-25 units remaining in buffer that will create a permanent cushion for the production system. But that's basically the rate ramp that we expect, is we're going to lag Boeing over the next 24 months as we burn down our own inventory, but that buffer will allow us to go up in rate and manage that more smoothly and efficiently.
Operator (participant)
The next question is from Miles Walton with UBS. Please go ahead.
Louis Raffetto (Director)
Good morning. This is, Louis Raffetto on for Miles.
Tom Gentile (President and CEO)
Good morning, Lou.
Mark Suchinski (SVP and CFO)
Good morning.
Louis Raffetto (Director)
Just wanted to go to the 787. I guess, you know, previously, you said you thought it'd be, you'd, you'd, unit 1405 in 2023. I guess, any updated thought around when that might be now?
Mark Suchinski (SVP and CFO)
Yeah, so with the lower production rates that were announced by Boeing, obviously, what we've done is, we've looked at our contract accounting estimates over that timeframe. So the accounting contract or block, if you wanna call it that, extended, and because of the lower production rates, and that's gonna drive some additional fixed costs into the block, which obviously caused more pressure as it relates to the current block that we have. We've updated that, and as a result of that, you know, we recorded a forward loss of about $103 million due to the block extension. A lot of that cost is non-cash. It's depreciation expense that we're gonna incur on the units over the next several years.
So I would say 20%-30% of that is cash burn over the next couple of years, so, fairly minor. But we still do have a good line of sight at line unit 1405, to hit our break-even target, on, on the 787 program. And so really a couple of things, it allows us a little additional time, to, further develop the, cost reduction initiatives that we have. We have a variety of different projects that were being implemented over the next couple of years, and that's gonna give us a line of sight to break even. But, this lower production rates are gonna put some pressure, and that's why we recorded the forward loss.
Tom Gentile (President and CEO)
But I would just say that the original projection was we were gonna hit 1405, line unit 1405 in about the 2023 timeframe. That's gonna get pushed out to the 2024 timeframe. So that's what Mark said, is we'll have additional time now to get to our cost reduction targets, so that by line unit 1405, price is exceeding cost. The other thing I would say is, before then, the 787 program is burning cash for every unit. So by reducing the number of units between now and line unit 1405, we actually burn less cash as a result.
Louis Raffetto (Director)
Okay, great. Thank you.
Tom Gentile (President and CEO)
Thanks.
Operator (participant)
The next question comes from Carter Copeland with Melius Research. Please go ahead.
Carter Copeland (Founding Partner, Global Aerospace and Defense Analyst)
Hey, guys. Good morning.
Mark Suchinski (SVP and CFO)
Morning, Carter.
Carter Copeland (Founding Partner, Global Aerospace and Defense Analyst)
Sorry for-- I'm trying to listen to two calls here, so I, I apologize if I, if I missed something here. But the on the Bombardier transaction, I think you said that there were still some closing conditions to be satisfied. I'm not sure if you can elaborate on what those are, and give us some color on, you know, what remains. But if so, that would be appreciated. And then secondly, on the 777X and the pushout there, I don't know if there's any difference in working capital there versus your prior plans, or, you know, help us think about, you know, where things stand on that program with respect to the revised schedule there. Thank you.
Tom Gentile (President and CEO)
Okay. All right. Thanks, Carter. We are aware that there are a couple other aerospace companies going at the same time, so apologies for that conflict. But thanks for, for joining us. With regard to the deals, the contracts for both the ASCO and Bombardier deals are public, so you can see the conditions. As, as we have discussed, there are conditions to close both deals, and if the conditions are met, we are obligated by those contracts to close the deals. However, if the conditions are not met by the long stop dates, the deals will terminate by their terms. So we're working with both Bombardier and ASCO to meet all of the conditions.
The conditions are not yet met for either deal, and as I mentioned in my remarks, the long stop date for ASCO is October first, and the long stop date for Bombardier is October thirty-first. So that's with regard to the deals. With regard to 777, Boeing has announced now that the 777-9 will push out in terms of its entry into service, and that they will have lower production levels for the 777 program. So that does, because we have our fixed costs already in place, that does create more fixed cost for the program at lower numbers of units.
So we've taken that into account in terms of our forward projections and in terms of our cash flow projections, and so we're comfortable with those projections, and we've built in to our plans what we have heard from Boeing in terms of what their expected production rates are for the 777 program and for their entry into service for the 777-9.
Carter Copeland (Founding Partner, Global Aerospace and Defense Analyst)
With respect to your working capital balances, just, just since you're running ahead, and, and that stretches out, is there a working capital burn off, that needs to happen as you rightsize that? Just, just trying to get a sense of as you step from 2020 to 2021, is there something there we should be aware of?
Tom Gentile (President and CEO)
Well, in general, on working capital, Carter, we did accumulate more inventories, particularly over Q1 and Q2, just because everybody had been set at 52, and for the 737 and for higher rates of production across all the programs. So the inventory has built up through the first half of the year. It will now start to burn down because we've adjusted all the POs for the discrete purchase orders and all the min-max levels for inventory. But because the production levels are lower, that inventory burn down will take longer than we had previously planned. But that's the working capital equation based on the production rate. So it rose up during the first two quarters of this year.
We'll start burning it off, but the burn off will be slightly slower because production rates now are lower across all programs than we had previously forecast.
Mark Suchinski (SVP and CFO)
Carter, specific to working capital on 777X, I think that's where you're going. I would tell you that, you know, we've been shipping product to Boeing... So we're not carrying a significant amount of work in process or parts inventory specific to 777X. It will be a little bit of a drag into 2021, and we won't be able to fully burn that off until 2022, and the lower production rates next year will be a bit of a headwind to both gross profit and cash. But we're still coordinating with Boeing and trying to get the final schedules, and as Tom indicated, at a macro level, we've kind of factored that in.
But, I wouldn't anticipate any significant carrying cost as it relates to working capital related to the 777X. We're in pretty good concert with Boeing as it relates to what their needs were. We'll just factor that in; it'll be a little bit of a headwind for us.
Carter Copeland (Founding Partner, Global Aerospace and Defense Analyst)
Great. Thanks for the color, gentlemen.
Operator (participant)
The next question comes from George Shapiro with Shapiro Research. Please go ahead.
George Shapiro (Managing Partner)
Yes, good morning.
Mark Suchinski (SVP and CFO)
Hey, George.
George Shapiro (Managing Partner)
When you make the statement that you'll be cash positive in 2022, what are you assuming in terms of rates going up on the MAX, I guess, particularly?
Tom Gentile (President and CEO)
Right. We've just really built in what Boeing's projections are in terms of what they've communicated publicly and how that will translate for us. So, we're really just taking their forecasts and plugging it in.
Mark Suchinski (SVP and CFO)
Yeah, George, I think, to be a little bit more specific, Boeing, on their earnings call, said that they would be at 31 a month in the early part of 2022. And so as Tom indicated, we do have a few slots stored here, so we're gonna lag them a little bit, by 5 or 6 ship sets. But if they go to the 31 at the beginning of 2022, the back half of '22 will be higher than that. And so, think about those types of production rates in 2022, which will give us line of sight to slightly positive cash flow in that timeframe.
Tom Gentile (President and CEO)
As I mentioned, our working assumptions are that we burn off our excess buffer by middle of 24 months, so middle of 2022. And so the back half of 2022, we would be basically back in lockstep with Boeing on rate.
George Shapiro (Managing Partner)
Okay, and then just-
Mark Suchinski (SVP and CFO)
Hope that helps, George.
George Shapiro (Managing Partner)
Yeah, and just a follow-up on a separate subject. The receivables were down, like, a little over $200 million in the quarter. I assume that you've still been selling receivables. At what point does that end, or would you just keep going on? Because it's usually a significant amount of dollars that helps the cash flow in the quarter.
Mark Suchinski (SVP and CFO)
Yeah, yeah, George, just, I think if you look a little, little deeper at the numbers, our revenue in the second quarter was roughly 40% lower than the revenue we recorded in the first quarter. Our receivable balances were, the drop in the receivables from the first, at the end of, March to the end of June, receivables were down 39.7%. So the drop in receivables were in concert with the drop in revenue. And, you know, we've, we've communicated with, with you guys publicly, we do take advantage of the supplier financing program that Boeing offers us. But there isn't, I would say that the receivables dropped in alignment with the revenue. There was nothing different from that perspective.
George Shapiro (Managing Partner)
Okay. Thanks very much, Mark.
Mark Suchinski (SVP and CFO)
Sure.
Operator (participant)
The next question is from David Strauss with Barclays. Please go ahead.
Matt Akers (Equity Research Analyst)
Hey, good morning, guys. It's actually Matt Akers on for David.
Mark Suchinski (SVP and CFO)
Hey, good morning.
Matt Akers (Equity Research Analyst)
Could you just briefly on the forward loss charges for 787, A350, you're forecasting in Q3, why is it that they're so much smaller than what you saw in Q2? I think you said in the remarks, there was something about an adjustment for kind of lower wide-body demand you saw in the second quarter. Is that it, or is anything else going on there?
Mark Suchinski (SVP and CFO)
Yeah. So, basically, what happened is, we took into consideration, in the first quarter earnings call, Boeing said that they were going to change their production. They were gonna go from 12 to 10, and then they updated and said production rates on 787 would be 10 for the remainder of this year, and then they would move to 7 a month, middle of next year. In their second quarter earnings release, they've indicated that the production rate will now drop faster than that, and that the 787 production rate starting in the middle of next year will be down to 6. So post our balance sheet date, it was a subsequent event. What we've done is, in the out years, we've kind of updated our forward loss, and it's just a disclosure.
We'll book it in the third quarter. It's just the one unit. It's going from 7 a month to 6 a month, and so that's why the 787 forward loss that we'll book in the third quarter is lower than what we just booked now. A350 is the same way. Airbus indicated that for the balance of this year and next year, instead of producing A350s at 6 a month, they're gonna produce them at 5 a month. So the forward loss, again, that was announced after we closed our quarter, and we've come up with initial estimates of the additional forward losses to go just to tweak the system and factor in the lower production rates.
Matt Akers (Equity Research Analyst)
Okay. Got it. Thanks. And I guess, just a quick follow-up. How do you think about kind of when you could get to those new, production rates on 787, A350? Are, are you there yet, or, or sort of how long does it take to get down there?
Mark Suchinski (SVP and CFO)
Yeah. So on A350, you know, we're right now producing roughly at 5 airplanes per month, delivering to our customer schedule. And you know, I would say in the, we're gonna be producing about 10 a month on 787 between now and the end of the year. And then as we move into January, production will shift down to 6 a month.
Matt Akers (Equity Research Analyst)
I get it. Thanks, guys.
Operator (participant)
The next question is from Doug Harned with Bernstein. Please go ahead.
Doug Harned (Managing Director)
Good morning. Thank you.
Mark Suchinski (SVP and CFO)
Hey, Doug.
Doug Harned (Managing Director)
You know, if we go back to when the world was more normal, you know, you would work through accounting blocks on each of your programs. You negotiated pricing on these. You know, you talked earlier about the 1,405 block on the 787. Can you give us a sense of what are the, what are the discussions like now with Boeing and Airbus? In other words, all of the predictability that was there before has changed. How do these accounting blocks even, you know, stay the same? And from the two OEMs, when do you typically get an idea of when a rate change or some change in the program structure would happen? How much lead time do you get?
Tom Gentile (President and CEO)
Great. Well, Doug, you're right, that times are definitely not normal, and the accounting blocks have just become longer. The accounting blocks on the 737, for example, for ASC 606, are about 200 units, and last year, we were doing that in less than a quarter. Now, that accounting block could take us all the way till the end of next year. So the accounting blocks have just spread out. The dialogue with both Boeing and Airbus, I would say, has been very strong. Both of those companies have held a number of supplier calls, and they've even held some calls for the bigger suppliers, which are smaller, which allow for more discussion and questions.
On those calls, they obviously can't disclose information that's not public, but what they can do is talk about scenarios and ask for feedback and give their impressions of the market and what they're doing in order to estimate production. One of the things that they've been doing, both of the companies, is having detailed discussions with airlines and essentially rebuilding their delivery schedule, aircraft by aircraft, airline by airline, based on what aircraft airlines can take and when they can take them. So they've been very open and transparent with us and with the other suppliers so that we get some indication of when they might make some rate changes, what to expect.
So, they’ve got their disclosure requirements, so they can’t disclose things that are not public information, but they can discuss scenarios with us, and they have done that. And then they have provided us with, in this environment, with as much lead time as they practically can. And then we’ve had to adapt. And as you’ve seen, when we get production rate changes, we’ve adapted very quickly to adjust our cost base to those, with announcements of employment reductions or facility closures or the reduction of non-labor costs.
Mark Suchinski (SVP and CFO)
Yeah, Doug, the only thing I would add to what Tom said is, yeah, constant communication. I think COVID, I mean, has resulted in a lot of uncertainty, and so we have received more production schedule changes this year than I think we've seen in the last five years. So it's really challenging from a financial planning standpoint, where you go through and you model what the impacts of it are, and then a few weeks later, you get another update. And so it's a constantly changing scenario from a scenario planning. And so as Tom indicated, we are moving very quickly to reduce our headcount.
We started that back in January, but there's always a lag between when you become notified of a production schedule change and then implementing the, whether it's a headcount reduction or some other action that you have. So we're continuing to chase the cost down, and it's always a lag between when we become aware of the production schedule change and our ability to take those costs out, in some instances, via the WARN process. There's a 60-day notification process. So the cost reduction activities lag a little bit, and so we're chasing that cost down. But I think we've gotten pretty close to the bottom on 737 for the remainder of the year. So the cost reduction activities that we've taken, we should see some level of stability, at least for the next six months.
I think next year is still a lot of uncertainty out there. But I think that will allow us some time to really start taking the benefits of the cost reduction activities that Tom just talked about, and we should see a little bit more stable performance in the back half of the year.
Tom Gentile (President and CEO)
But it's a dynamic environment. We understand that, and we just have to be agile, so when we do get the official notification, take the appropriate action to adjust the production rate and also adjust our costs to the new production level.
Doug Harned (Managing Director)
But what seems so hard here is when you were talking about the steps you're taking, which totally makes sense, with related to lean manufacturing. So when you're back up, that should lead to better performance. But how do you do that? In other words, what kind of rates are you thinking of for the 737 or the A320? Because we're not gonna be back at, you know, 57 a month for the 737 or 63 a month for the A320 for quite some time, I would expect.
Tom Gentile (President and CEO)
That's right. I mean, Boeing has indicated what their schedule is for next year. Airbus has done the same... based on what they, they currently know. But, you know, I would say, Doug, there's still a lot of uncertainty in the market in terms of the MAX is not back into service yet. Still don't know how the whole COVID-19 pandemic will play out. I think as those things get better understood, Boeing and Airbus both will be able to project their production schedules better, and therefore, our production schedules. But we just have to stay agile in the meantime. It's a dynamic environment.
Doug Harned (Managing Director)
Okay, all right, thank you.
Operator (participant)
The next question is from Mariana Perez Mora of Bank of America. Please go ahead.
Mariana Pérez Mora (Director)
Hello.
Tom Gentile (President and CEO)
Good morning.
Mariana Pérez Mora (Director)
So my first question is gonna be related to the sensors on MAX. All those issues with the aircraft are not your fault. How can you manage, in the context of a long-term relationship with Boeing, to identify kind of like, offset yourself in the future of all the impact, impact that the MAX has caused?
Tom Gentile (President and CEO)
I'm sorry, could you, could you repeat the question again? I, I didn't quite get it all.
Mariana Pérez Mora (Director)
Sure. So the issues on the 737 MAX were not your fault. Is there any way that you can indemnify Spirit in the future?
Tom Gentile (President and CEO)
Right. Well, I understand. So, we work closely with our customers, in this case, Boeing, on all of the changes that come. Our relationship is governed by a contract, a sustaining contract that went into effect when Spirit split from Boeing back in 2005. One of the things that we did negotiate a while back was an extension of our pricing agreement, and now it goes all the way out to 2033. And with Boeing on the 737, it's essentially indexed to rates. So as the rates go up, Boeing gets more of a discount, but as the rates go down, then Spirit gets a higher price. And that's one of the ways that we've been able to insulate the 737 MAX program from these production changes.
Mariana Pérez Mora (Director)
If I were to think about the cash margins you get on 737 MAX according to that agreement, what would be a reasonable range?
Tom Gentile (President and CEO)
Well, we don't really talk about margins for individual programs, but again, on an overall basis, Spirit has indicated that our target for margins is 16.5%. And obviously, the MAX being half our revenue, has a big influence on that. And as I mentioned earlier, our goal would be to be back up to that range of margins once the productions get back into the 40s per month, 42 per month.
Mariana Pérez Mora (Director)
Okay, and then the last one is, as you leverage the learned lessons so far, how do you think... Do you think they are too dependent on Boeing? What are the plans that you have to protect yourself from this, like, dependency in the future?
Tom Gentile (President and CEO)
You mean in terms of diversifying from Boeing?
Mariana Pérez Mora (Director)
Yep.
Tom Gentile (President and CEO)
Yeah. Well, first of all, Boeing's our largest customer, and we are very proud to be one of their largest suppliers. And we've always worked extremely well with Boeing and wanna continue to grow with them. They're a very important customer, and we have won additional work over the years. At the same time, it's clear that that concentration is something that we wanna change, and we wanna have a more diverse and broad-based customer group. And so we have been working over the years to diversify, to grow our Airbus content, and that was one of the reasons that we announced the acquisitions of ASCO and the Bombardier Aerostructures assets.
But we've also been working to win new work packages with Airbus, and we have been successful in doing that on some wing components and the spoilers that I mentioned earlier. In addition, we've been growing our defense business. And our defense business this year is gonna grow about 20%. We've had some significant new wins with the defense primes. We did get that Title III award from the Department of Defense for $80 million. And after the FMI acquisition that we completed at the beginning of this year, we're very well positioned to be a leader in areas like hypersonic weapons. So we see significant opportunity on the defense business. And then, probably the last area of diversification that I'll mention is aftermarket. We've always had a relatively small aftermarket MRO as well as spare parts.
We see opportunities for that to grow in the future, and we have made a number of changes in that part of the business in order to facilitate the growth.
Operator (participant)
The next question comes from Robert Spingarn with Credit Suisse. Thank you. Or please go ahead.
Robert Spingarn (Managing Director)
Hi, good. I guess it's good afternoon here anyway.
Tom Gentile (President and CEO)
Hey, Robert.
Robert Spingarn (Managing Director)
Hi, guys. Tom, I might have missed this in your monologue, and maybe it could get pieced together, but I was wondering if I could ask you at a high level to maybe give us a reset and reconcile what you have... I'm talking about all of your major Boeing programs, so 737, 787, 777, to reconcile how many shipsets you have on hand, whether they're yours or they're Boeing's, so we can get some kind of sense as to what level of underproduction you need to do on the non-MAX programs.
Tom Gentile (President and CEO)
Right.
Robert Spingarn (Managing Director)
'Cause I imagine, word has it, there's 57 787s, you know, in Everett. I'm sure some of those are taken, but others aren't. And I imagine now with the change in the 777 rate, we're gonna have a timing issue there as well. So if we could just level set this whole thing Yeah, it's fairly straightforward. On the Max, as I mentioned, we have about 130 ship sets in buffer, but Boeing owns all of these. So our terms and conditions were FOB. When we finished the product, they took possession of it. They paid us after the payment term period, and then we stored them in place, and we do that on behalf of Boeing, but Boeing owns those. So all of the buffers is owned by Boeing. On the 787 and 777, we essentially ship those products as we produce them. We don't hold any inventory at all at Spirit in Wichita on those programs.
Okay, so there's nothing, no cash to release anywhere?
Tom Gentile (President and CEO)
Not, not on those Boeing programs in terms of, inventory that, that Spirit is holding.
Mark Suchinski (SVP and CFO)
Yeah, I mean, Robert, we actually have product work in process in the factory, just based on the flow of the factory. But no, we don't have any completed units just sitting here waiting to be delivered. You know, we produce what Boeing asks us, and we deliver, and for the most part, all of our product is FOB our plant, FOB origin. So, as Tom indicated, you know, we're not carrying a lot of finished goods inventory because of the production slowdowns.
Tom Gentile (President and CEO)
Correct.
Robert Spingarn (Managing Director)
Okay, fair enough. But they are. So the question you already addressed on your difference in production between your rate and Boeing's rate on the Max, how would we think about that same question on the other two programs, 787 and 777? In other words, if we look at their.
Tom Gentile (President and CEO)
We just ship to their demand. There's no buffer at all.
Robert Spingarn (Managing Director)
Well, except for the fact that, again, they have inventory, clearly have inventory, so, you know, the, your rates and theirs won't match.
Mark Suchinski (SVP and CFO)
Well, again, Robert, I guess let's just talk about 787 specifically. So we have a production schedule from Boeing. Starting in the third quarter, we're delivering at 10 airplanes per month. They're accepting 10 airplanes per month. That plan continues until the end of the year. Starting in January of next year, the plan is for us to produce at 6 aircraft per month and deliver to Boeing 6 aircraft per month. Our production system is tied to the delivery schedule.
Tom Gentile (President and CEO)
No, no, I would say it's our production system is tied to their production system.
Mark Suchinski (SVP and CFO)
Yeah.
Tom Gentile (President and CEO)
You probably should just differentiate between deliveries-
Mark Suchinski (SVP and CFO)
And production
Tom Gentile (President and CEO)
... and production.
Mark Suchinski (SVP and CFO)
Yeah.
Tom Gentile (President and CEO)
So our production on 787 and 777 is absolutely lockstep with Boeing's. The delivery may be different if they have their own finished goods, but our production schedules are absolutely lockstep with them.
Mark Suchinski (SVP and CFO)
That's both Boeing-
Robert Spingarn (Managing Director)
You're being paid for production, so you're fine there?
Mark Suchinski (SVP and CFO)
Yes.
Tom Gentile (President and CEO)
Correct.
Robert Spingarn (Managing Director)
Okay, and same applies to 777?
Mark Suchinski (SVP and CFO)
Yes.
Robert Spingarn (Managing Director)
Okay. Thank you.
Mark Suchinski (SVP and CFO)
Okay.
Operator (participant)
The next question is from Hunter Keay with Wolfe Research. Please go ahead.
Hunter Keay (Managing Director)
Thank you, everybody, for getting me on. Tom, you mentioned the calls with Boeing and the scenarios that you guys consider on these calls. When you talk about these scenarios, to the extent, obviously, you can share those conversations with us, is there a scenario where the 777X is delayed indefinitely or maybe even permanently? And I know you mentioned, Mark, the work-in-process you have there being, you know, not particularly significant, but how many other investments or even assets do you have tied up in the 777X program right now? Thank you.
Tom Gentile (President and CEO)
Well, we have not had any discussions with Boeing about anything on the 777X, other than that what they have released publicly now, so nothing, nothing different there. In terms of the wing assets, we have invested in the appropriate capital for, and infrastructure for the 777X. Boeing owns the tooling on those programs. It's a sustaining program. But we are basically set up to produce to their production levels in the future. And that investment has already been made, so that's past us, and when the production rates do increase on that program, we will have the capacity to meet the demand.
Mark Suchinski (SVP and CFO)
Yeah, Hunter, I would also say that the majority of the production assets are common for us across the 777 and the 777X. Obviously, the big difference for Boeing is a composite wing. So we don't have a significant, you know, set of production assets just for the 777 versus the 777X. There's a lot of commonality there and a lot of interchange. So I don't think that there would be anything significant if Boeing decided not to do the X. We would just continue to produce the historical 777s.
Hunter Keay (Managing Director)
Okay, thank you.
Operator (participant)
The next question is from Michael Ciarmoli with SunTrust. Please go ahead.
Michael Ciarmoli (Research Analyst)
Hey, good morning. Thanks for taking the questions. I jumped on a little bit late here, but just on the two acquisitions, both ASCO and Bombardier, can you give us a sense of what the current revenue run rates are? You know, I mean, quite a lot's changed since those have been announced. And then even with Bombardier, obviously, you know, not having the nacelle contract anymore, just does that structurally change anything regarding, you know, the contract terms, the price being paid? Just looking for a little color on those deals and the trajectory.
Tom Gentile (President and CEO)
Yeah. Well, the ASCO deal, the—when we announced it, the public information and the revenues were about $400 million. Bombardier, a little over $1 billion. Obviously, like the rest of the aviation industry with COVID, those numbers will be impacted, and we continue to monitor it, but it's, you know, it's in line with what you'd expect in terms of the COVID impact, but with the opportunity to recover as production rates recover. With regard to specific work packages, we've obviously we keep track of everything. On the one you mentioned, Airbus hasn't made everything completely public yet, so we're watching it carefully and talking to Bombardier about what the potential impact could be.
Michael Ciarmoli (Research Analyst)
Okay. Would that change any of the terms? I mean, was that, presumably, those were in the financial projections, that nacelle opportunity, and granted it was gonna be competed, I think, with Raytheon. So, but if once you get more clarity from Airbus, I mean, could that materially change the financials, valuation, and potential price being paid for those assets?
Tom Gentile (President and CEO)
Well, we're gonna monitor it, it carefully. I mean, there's no.
Michael Ciarmoli (Research Analyst)
Okay.
Tom Gentile (President and CEO)
There's no specific trigger that ties one thing.
Michael Ciarmoli (Research Analyst)
Okay
Tom Gentile (President and CEO)
To another. But it's all about meeting the overall conditions of the deal. As I said earlier, we're working with both ASCO and Bombardier to meet the conditions of the deals.
Michael Ciarmoli (Research Analyst)
Got it. Thanks, guys.
Operator (participant)
This concludes our question and answer session and the conference. Thank you for attending today's presentation. You may now disconnect.