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Executives

Coleen Tabor – Director, Investor Relations

Jeff Turner – President and Chief Executive Officer

Phil Anderson – Senior Vice President and Chief Financial Officer

David Coleal – Senior Vice President and General Manager, Fuselage Segment

John Pilla – Senior Vice President and General Manager, Propulsion Segment

Alex Kummant – Senior Vice President and General Manager, Oklahoma Operations

Terry George – Vice President, Spirit 787 Program

Sam Marnick – Senior Vice President, Corporate Administration and Human Resources

Analysts

Julie Yates – Credit Suisse

Doug Harned – Sanford Bernstein

Cai Von Rumohr – Cowen & Company

Howard Rubel – Jefferies

Sam Pearlstein – Wells Fargo

Carter Leake – BB&T

Carter Copeland – Barclays

Peter Arment – Sterne Agee

Jason Gursky – Citigroup

David Strauss – UBS

George Shapiro – Access 342

Kevin Ciabattoni – KeyBanc

Myles Walton – Deutsche Bank

Howard Rubel – Jefferies

Ken Herbert – Wedbush

Joe Nadol – JPMorgan

Spirit AeroSystems Holdings, Inc. (SPR) Analyst Meeting Call March 7, 2012 9:00 AM ET

Coleen Tabor – Director, Investor Relations

Good morning to everyone in Wichita and those of us joining on the phone. We appreciate you joining us today. And I'd like to welcome you to Spirit's 2012 Investor Conference. I am Coleen Tabor, Director of Investor Relations for Spirit AeroSystems and it's my pleasure to welcome you to Wichita and Spirit AeroSystems' Fourth Investor Meeting as a public company. I would also like to welcome those participating in today's webcast.

Over the next few hours, we intend to provide you with our perspective on where our business is today in terms of the core business, new business, the opportunities we have in front of us, and our focused areas. Before we get started, I'd like to cover a housekeeping item that will make the day go more smoothly. For those attending in the room, there are microphones in front of you. (Operator Instructions)

Now, let's take a look at today's agenda. I think you go to the next slide please. Thank you. In just a few minutes, our President and CEO, Jeff Turner will review the company's strategy and business update. Jeff will be happy to take your questions after his remarks. After Jeff, we will hear from Phil Anderson, Senior Vice President and Chief Financial Officer regarding our financial performance and outlook. Then our segment and operating leaders will review the segments along with the special focus topic beginning with David Coleal, our Senior Vice President and General Manager of our Fuselage Segment. He will speak to you about the Fuselage Segment and operational efficiency across Spirit.

Following a short break, John Pilla, Senior Vice President and General Manager of our Propulsion Segment will speak to you about the Propulsion Segment and value engineering across Spirit. Following John, Alex Kummant, Senior Vice President and General Manager of our Oklahoma Operations will speak to you about the Wing Segment and new program execution. Then Terry George, Vice President of Spirit 787 Program will give us an update on the program followed by Sam Marnick, our Senior Vice President of Corporate Administration and Human Resources. He will share more about aligning the entire team for success. I think we have a great lineup today that will give you a real sense of how Spirit is moving forward.

Of course, before we begin, we need to take a look at the next slide. 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, in our SEC filings, and in the forward-looking statements at the beginning of this web presentation.

Now, let's get started. Many of you have come to know Jeff Turner over the past several years. Jeff has 30 years of experience in the aerospace industry. He was named President and CEO of Spirit AeroSystems in June 2005 upon the purchase of the Boeing Commercial Airplanes' Wichita Division by Onex. Prior to becoming CEO, Jeff served as the Wichita Division's General Manager for 10 years.

Now, it's my pleasure to introduce our President and Chief Executive Officer, Jeff Turner.

Jeff Turner – President and Chief Executive Officer

Thank you, Coleen and good morning everyone. I appreciate you being here and those are joining us on the phone, thank you. You are going to miss a nice breezy day in Kansas. It’s good to be in towards the day, because the wind is still howling outside. Again, welcome, thank you for coming and spending time with us in Investor Day. I know there were several of you who didn't get in, in time for the tours yesterday, and I think we have got some tours planned later in the day for those of you who missed yesterday or we are so excited about what you saw that you want to go see it again.

I am pleased that you are here with us. I trust those of you who got to see the tours yesterday that you enjoyed them. I always am amazed when we go out and walk through what a team of people can do when they work hard together. You saw and shared some great things on the 787, fast-paced 737 line, and the Sikorsky Fuselage is coming together very, very well.

I would like to begin today by introducing to you my team. Many of whom will be following up my comments to share their perspectives on specific focus areas. Since many of you have joined us before, I think you'll recognize about half of the faces on this chart, which demonstrates our retention of the industry knowledge, the relationships, and the expertise upon which Spirit is built. You'll also notice several new faces. This team is part of a very conscious specific area of emphasis for us and it's the next generation of leaders at Spirit. This group brings diverse experiences and leadership responsibilities in the aircraft industry and other manufacturing and transportation industries. The gold frames there will be the formal speakers this morning, but we have asked all of them to be here for those who are in attendance for you to meet.

Our transformation story includes transitioning from a division of Boeing, where we controlled some of our costs, where we had one internal customer and we had a cost center, cost management approach transitioning to an independent company responsible for and controlling all of our costs competing globally having multiple customers, and of course, being profit motivated to be a low cost, high quality leader in our industry. As you can imagine, there have been many, many successes, many lessons learned in this transition and it's brought us to the day where we are intently focused on execution, on continued to executing in a growing environment and diversification.

Strategically, we conservatively structured our company, believing we needed to be conservative to manage through the (indiscernible) of the business cycle in our industry. We have seen production increases with 2012 production rates continuing to rise and with a strong large commercial aircraft outlook ahead. We have captured new business with new customers, additional business with existing customers. We have invested heavily in the 787, the A350, and some business jet products. We continue to improve our low cost structure, which is one of the areas my team will focus on later in the presentations as they share with you our focus on operational efficiency, on value engineering, and on new program management.

Following our basic strategy, we've seen growth primarily organically, but also through focused M&A. Our core business continues to perform well. We were $4.9 billion revenue company in 2011 with strong underlying cash generation from our core programs. Our current revenue guidance for 2012 is approximately $5.2 billion to $5.4 billion. We are the designer and manufacturer of a range of aircraft structural products pictured here, Fuselages, Wings and Propulsion support hardware. Those of you who are here yesterday saw our strength in both metallic and composite structure large capability in both. You saw our large scale automation in our processes, and today, you will hear more about how we were closely with our customers to ensure that we meet their requirements.

Spirit has expanded globally with strategic partnerships around the world. In addition to our Wichita and Tulsa McAlester sites, we have our Spirit Europe site and Prestwick Scotland. Spirit Malaysia opened in 2009 and supports primarily composite wing assemblies. Our joint venture in Moscow has provided us and continues to provide us with engineering design resources. Our joint venture in Jinjiang, China supports maintenance repair and overhaul work for Asia, primarily in our net sale products. Our Kinston North Carolina and Saint Nazaire sites support the Airbus A350 XWB. In total, we have more than 15,000 Spirit employees with facilities of over 15 million square feet. We are well-postured to support the anticipated global growth in these large scale commercial production requirements.

In addition to these global resources, we have a worldwide supply base that does hardware production as well as design. This network and suppliers around the world and our ability to bring these resources together demonstrates our expertise in global supply chain management and positions us to serve our customers anywhere in the world with high-quality production and service at a reasonable value at bringing cost. We all know that the requirements for our business starts with revenue passenger miles. We continue to see growth with the forecast estimating a doubling of air traffic in the next 15 years driving a doubling of aircraft fleet requirements to support global customer demand. This is fuel for the replacement and growth demand that we see in the emerging markets. Though I must say categorically, I don’t believe it will be near the smooth, I do believe the underlying demand continues to be there for our products.

As demand for growth and replacement airplanes generates about 33,500 deliveries between 2010 and 2030, Spirit sees 20% or higher growth across nearly all of our core and new programs. Core products are an integral part of our content. Core platforms remain the backbone of Spirit by continuing to generate solid revenue earnings and cash for our company. From a Boeing product perspective, no Boeing airplane flies without Spirit hardware. Spirit has the highest level of delegated engineering authority of any Boeing structured partner, and we have life of program plus derivative contracts on these programs. With our acquisition of BAE Aerostructures business in 2006, we added Airbus as a significant customer. This accelerated our relationship with Airbus and the A320 program Airbus's most successful one. On it, we have a major content and we see continued strength in that program well into the next decade. And on the A380, we are currently producing at a steady rate.

The best programs to be on in the industry are the ones that Spirit has significant content share. New programs in general and this one in particular have been challenging, but we know that the 787 is going to be a great program. These are some pictures of Spirit’s capability that many of you got to see first hand yesterday. Complex design and manufacturing is our forte and to that we have added systems installation from half-inch carbon fiber ribbon to a final cockpit to a final flight capable cockpit. This embodies the values and the value that we bring to our customers and demonstrates it's not all just about cost, but also about quality and service. We are very pleased that the airplane is certified and in service. We are working closely with our customer on the design of the 787-9 derivative.

We are working with our suppliers to ensure production ramp up readiness and with cost reduction as a top priority on this program, we are intensely focused on productivity and efficiency and improvements. Terry George will tell you more about these efforts in his program update later this morning. We have grown our business with Airbus as a significant partner on the A350 XWB. We designed and build the A350 Section 15 and the wing front spar in a new state-of-the-art composites facility. We fabricated the center fuselage sections for test and now initial production have been completed in North Carolina and shipped across the Atlantic to our Saint Nazaire facility, where there were assembled and then shipped across the runway to our customer earlier this year.

Total program investment on this program is shared between Spirit suppliers and partners and Airbus. Early stages of production hardware is where we find ourselves now and we feel good about our progress to-date and our growing relationship with Airbus. Alex Kummant will share more about how we are managing this and other new programs with the lessons learned and getting good results. We've diversified in the business and regional jets with some of the best companies in the industry. Gulfstream programs continue their progress as we build the initial production wings with the G280 and the G650. Mitsubishi Regional Jet and Bombardier CSeries programs on which we do the engine pylons are progressing well through the development stages.

We have also moved into pure military platforms as well as military derivatives of commercial airplanes. The CH-53K is our first pure military product that we captured. We continue to work closely with Sikorsky to ensure that we meet their schedule and technical needs and are prepared for future buys. The P-8A is the first military derivative product that we've manufactured on the commercial production line. These diversification platforms with market leading partners we believe gives us competitive advantage.

Despite the overall global economic conditions over the last several years, our backlog held at near record levels and is growing again in 2012. This chart reflects through the end of December. In 2011, the large commercial backlog remained strong as annual orders exceeded deliveries. (Callus) continued to be the strong demand for single-aisle products. We are seeing a growing demand for wide-body products as well.

This chart shows the strength and the diversity of our backlog, which remains at almost $32 billion. This is a long-cycle business. Programs that we are winning today will be in production over the next several decades. 78% of our backlog is either not yet in full production or has been in production less than 15 years. Many of the new programs have jointly funded development costs between Spirit, our partners, and our customers. For us, it continues to be about bringing our capability and expertise to our customers' product families and them having a reliable partner and supplier long-term.

The recently announced 737 MAX and previously announced A320neos will extend the products representing the biggest part of our backlog 15 to 20 years at least into the future. Spirit will have substantially the same content on these derivative airplanes as we do on the current production models today. Specifically, regarding the 737 MAX, this is the best possible outcome for Spirit. We will use our expertise and capability to bring value to our shareholders as this derivative integrates into our current 737 lines and utilizes our installed capital base. This is a perfect example of our role as a reliable partner and strong supplier on one of the very best selling commercial platforms in history.

It's all about long-term value creation. We continue to have strong and growing core global market for growth in replacement airplanes, in emerging markets. We are well positioned on the best selling airplanes. Again, I continue to say if you are in our business and you could chose you platforms that you'd want to be on you chose the ones that Spirit is on.

Content on the 787 will take us decades into the future. We are focused on executing the core business through operational efficiency, well – and we believe ultimately while the outsourcing trend has slowed that solid core outsource partners will continue to have a solid place in this marketplace and the growing place in the marketplace.

With that, I'll stop and will be glad to try to answer any questions you might have. George?

Question-and-Answer Session of Jeff Turner

Unidentified Analyst

Yeah, Jeff. Several years ago, you made a big point about wanted to diversify away from Boeing given the issues that you had with like the Gulfstream programs and what's kind of your thinking today?

Jeff Turner

Well, I think clearly we are in this business as a Tier 1 integrating partner for the industry. So, the fundamental strategy of supplying to the whole industry continues to be a focus for us. I think we – full part of the lessons learned is the number of new programs and the challenge that slides and delays can cause on new program stack up has made us probably more cautious as we look forward to the number of new programs that we take on at the same time. But clearly, the day we became Spirit, our addressable market increased fourfold and we continue to consider ourselves as supplier to the entire industry, not simply the one customer. Other questions? Yes.

Unidentified Analyst

Can you talk about any other risk associated with this backlog in terms of financing going forward as you look at over a number of viewers just by the ultimate customers?

Jeff Turner

The risk of financing is actually not my expertise, but I mean clearly, the backlog, there is couple of things I will say about the backlog one is – as I mentioned on the chart, where we focused on growth in the industry. I think clearly, there is a strong underlying demand for these products. I don’t think it will be smooth, a smooth execution of that backlog. I think there will be plateaus surely sometime in the next decade or more will probably see an industry downturn. It's historically been there pretty cyclical business. We haven’t seen it in the last several years. We saw a plateau, but not a downturn. So, I think there will be some of that. I know there is a lot of conversation about how real that backlog is in its entirety. I will tell you that that backlog only reflects firm orders, does not reflect options for additional orders. So, there is actually some hidden part of the backlog as well that we don’t reflect in our backlog. So, I think it will be executed. The question is when and how quickly will it be.

Unidentified Analyst

Just as the practical matter though, if someone comes and orders a 100 planes and Boeing would consider that firm, what else do those airlines have, should there be another downturn?

Jeff Turner

I don’t know the specifics of that, but clearly again, I believe a firm order and David Walker could correct me if I am wrong. Firm, we do – we call it a firm order when it's not just in order, but it’s got down payment associated with it and that's when it goes into the firm backlog for us. And then of course what we do is just simply take our content per airplane and multiply it out to get our backlog.

Unidentified Analyst

Thank you, Jeff. To go and talk a little bit out diversification, where do you see that size of the business in a couple of years and have you felt like you've been able to get to the point where your costs are competitive relative to what they could be? And then could you use the Gulfstream contract negotiations is kind of an example, I know, you only have what 20 G280s on firm order and the 100 650s. And so those are quickly coming to the point where you have to decide how to ask for the money that you need to make those programs profitable?

Jeff Turner

Well, that’s a number of questions heard in that one question. I mean, clearly, let me start at the end and try to go back and you may have to remind me. There is a difference between what we have purchased firm purchase orders for and what we have in the plan for the program. And typically pricing over a block of airplanes is controlled by the contract that we set, changes to that would require additional negotiation. So, there are some openings for additional negotiation, but often most of the economics are set on the program. In terms – I think part of question was again diversification in the size of that back, how much of the diversification, clearly, the very strong demand for our core products, drives the bottom – top line for us and frankly bottom line in its totality, strong demand for 777s and 77s and A320s, 87s as they come on will keep the relative percentages fairly constant. So, the diversification fees will remain a relatively small piece, absent some major M&A activity or something like that. So, organic growth will take a period of time for that, in fact, probably several cycles and new airplanes for that balance to come. And we love the growth in the core programs, so we are not trying to get a balanced portfolio at all costs, but I do think we are – we believe very strongly that we are cost competitive, we have customers who want us on their programs. We have to be judicious in how many we take on it at one time. Still I think you have questions?

Unidentified Analyst

Jeff, a few years ago, when you guys came out of Boeing, there have been talk about may be some other transactions, other airframers divesting perhaps some of their manufacturing and perhaps the establishment of maybe two or three companies, (indiscernible) here a little bit, but a number of companies that did what you do. And you had also talked about M&A really as a goal, if we look at what happened, there has been in the U.S. probably one major transaction outside of you guys coming out and that was bought. You've been growing organically investing your resources internally. I guess what changed and if you look out the next 5 to 10 years, do you see the industry taking a different turn and perhaps M&A playing a greater role?

Jeff Turner

I think it M&A could play a different role going forward. Again, it will be depended on the number of new starts, the opportunities that we see the economics as they look to us. As you know, we did the one M&A relatively early in our life. We looked, I think as you all know, we looked hard at some additional ones in Europe, some of the Airbus facilities and made the decision not to do that. I think we'll continue to do that as they come available. I don't think there will be a lot of airframe type activities. But again going back to my point about the outsourcing trend, I think it slowed, but I think the underlying dynamics that drove it remained, which is cost effectiveness, cost competitiveness in the marketplace. So, I think in the next decade certainly half decade, there will be opportunities and we'll take a look at it. Somebody, one of you raised your hand back here a while ago.

Unidentified Analyst

I just – on your strategy page on the bottom you did talk about just the profitability, but just – can you just talk more in general terms about what your goals are and targets in terms of returns? In years passed, you've broken down core businesses versus development programs, but just as you see the business, what kind of return should it be able to generate?

Jeff Turner

Phil, is that in your pitch?

Phil Anderson

Yeah, I think the...

Jeff Turner

I don’t know still Phil is done.

Phil Anderson

No, we talk a bit about returns, I think the Boeing talked about a year ago is still hold right the new business as it was bid and won. We had what we think was very attractive return based on some of the risk profiles. In fact some cases better than the core business and some of the challenges we have experienced as we move into the development cycle have eroded some of that return obviously and so the challenge now is to take the growth we have captured and return it to a level of profitability that we are comfortable with.

Jeff Turner

I think clearly in the next several -- in the next several years as we look at strong growth in our core business and frankly some new programs with low margin coming in at higher volume, not allowing the new programs with higher volume and lower margins to swamp the overall profitability in the company. So, we are very, very focused on growing profitability in the core programs and improving profitability on the new programs and not having a degradation to overall profitability as both the top line and the bottom line growth. I have got -- I think I have got time for one more question. You down there ask it right there

Unidentified Analyst

Yeah, hi thanks Jeff. The first two strategy goals are obviously new business and execute on current programs. As you look at the landscape over the next few years, I know that’s clearly been a challenge. As you look at deploying capital, is there anyway you prioritize as it really about executing, when you got now relative to new business or how do you think about that over the next few years?

Jeff Turner

Sure, the only thing I would amend is that our strategy and it’s really how we deploy our resources. Our strategy first and foremost is our core programs and the growth of those core programs and to do rate increases effectively and with high productivity and efficiency and those. Followed by new business from organic growth followed by new opportunities with M&A. M&A, that’s number two and number three priority might move around honest depending on the opportunity horizon that we see there is a lot of programs already in place and our focus is on executing those programs much more than going out and acquiring brand new work to do.

So, with that I will let Coleen pull me with the hook and keep us on schedule. Again thank you for being here and I will be around to answer any questions you might have.

Coleen Tabor – Director, Investor Relations

Thank you, Jeff, and thank you all for your questions. Just a quick reminder, if you could please state your name and your firm, so we have a good copy for the transcript, I would appreciate it. Also if you would turn your phone to vibrate, I appreciate that as well, quite. Now I want to turn to review of our financial performance and outlook, based on the strategy that Jeff just shared with us. Many of you familiar with Phil Anderson more than 20 years of experience in the aerospace industry including both commercial and defense and in the variety of leadership roles in finance and manufacturing operations. He was named Spirit’s Chief Financial Officer on February 2010.

Now, it’s my pleasure to introduce our Senior Vice President and Chief Financial Officer, Phil Anderson.

Phil Anderson – Senior Vice President and Chief Financial Officer

Thank you, Coleen, and good morning. I would like to extend my welcome to you also to Wichita and to those on the webcast this morning. So, as I mentioned there is some comments last week, to the exciting time in commercial aerospace right. It’s an environment, where demand for our current end production products are increasing, the next generational products are coming to the development cycles and the next wave of development we are always more focused on the refreshing end production products then it is clean sheet design and of all which is pretty exciting for our industry.

And frankly that excitement translates directly into Spirit AeroSystems. By definition, we are a commercial airplane company that is what we do. We are one of the industry leaders in quality, and capability, reliability, dependability and partnering as we move through the development cycles and its growth, growth phase we are in right now and I think we tend to work really well with our customers and I think that’s a definitely plus up for our Spirit in terms of our reputation and our ability in the marketplace.

So, this morning I have just a few slides to share with you as we navigate through the growth cycles, we find ourselves in and as we moved some of these development programs through the development cycle and as we approach our seventh birthday as a standalone company, which is pretty exciting for us.

So the several points on this slide, I would like to point out. The slide early represents many different dynamics in the industry in which we operate. Not at least in which this is a 20 of the 30-year product cycle business. In that 20 of the 30 years starts out with five to seven years of development, few years of initial production and then moves into a long, long run of production, which is historically what we have been very good at Spirit. That is our core business. That end production and you see those core business programs listed there, those programs have generated over $2 billion in cash and since the company’s inception in 2005 and we have consciously reinvested that money in organic growth, which is the program you see underneath the five to seven year development and once going into initial production.

The ones in bold you see there a clean sheet designs. So, $2 billion reinvested in clean sheet designs provide us diversification and growth as carve out of the Boeing Company and inter-depending of our strategy, which Jeff talked about.

Financially, a point seven there, you see the risk management swim lane, where develop the programs inherently more risky at the front end of the program and the risk mitigates and reduces as you move to the development cycle and then ultimately you end up in the operating, recurring phase of the contract or a program, where that business risks really translates into the in our business turns into economy risk in the cyclicality fundamentally. So, the mitigation element you see on the slide are clearly, when we look at the development cycle, it was mitigation of contracting, program management, execution, etcetera are things we or lessons we have learned on some of the new programs and that we are certainly improving our ability toward change management, contracting and the other items you see there.

Historically, the things were very good at on the things in the business risk cycle, where the OEMs have been part of this from the backlog management standpoint, from the production rate management standpoint. We get to way in, we get to vote and try to influence sort of decisions and, but ultimately the OEMs makes the decision on how they are going to fill the backlog and that all plays pretty well. That is a risk we bear, but we actually very good having to manage through that.

And then as I move to point nine and ten, we are investing in diversification and we are improving our risk management as we think about new development programs and clearly on investing in the core business because a low risk proposition for a company and one, we are really excited about.

So, the next series of slides, I am going to walk you through relatively quickly because I want to get to the Q&A for you. It’s a series of slides for financial trends for the company. So, here you see the volumes increasing two-time and the balance to Boeing, Airbus deliveries on a ship set basis. On a revenue basis, Boeing is till 85% of our revenue in 2011 and Airbus represents about 10% of our base revenues.

Revenues continue to grow driven by our core business volume and new programs. GAAP operating margins and EPS do reflect the strong underlying operating engine of Spirit and they are also reflect the challenges that we have all talked about over the last several years on new programs as they mature through the development cycle.

The core business they have been solid source of cash flow as I mentioned earlier. Customer advances, customer capital reimbursements did help the company in 2005 to 2008. Customers advances that you know are generally repaid through performances as we deliver products we liquidate those customer advances over agreed to number of units and then the cash for operations came to 11 are representing the repayment of those customer advances mainly on 787 are one of those advance payment streams we actually retired and completed in the third quarter of last year.

2012 of course reflects the very different look for Spirit. This is where advance payments are much lower in the current timeframe and they are spread out a little more time specifically on the 787. All of which helps us both – most of the cash flow 2012 and the capital expenditures of course reflect right around $250 million on the annual basis, which is where – feels like the run rate is to us and capital management is intense focus for operating team and some of the guys have come up later conservatively address it. But it's too full, really it's about finding ways to do it without the capital and timing the capital investment is critical on new programs especially when you have the number of new programs we're on. So, we are very much focused on both of those elements on an operating basis.

The balance sheet and liquidity remained very strong. We've consistently maintained our proactive approach to funding the company through the diversification of the LBO to a standalone company. Within this timeframe, we have also managed through a couple of labor strikes at our big consumer as well as managed through the recession in 2007, '08, and '09. So, lot of challenges for a young company coming out of an LBO, but actually from a capital structure standpoint and from my view very successfully have navigated some challenging times for the last 6 or 7 years. And prudent and proactive capital structure management will just continue to be something we intensely focus on given the nature of our business.

So, let's turn to the outlook for the company and take a look at growth and profitability. Demand for our core products has grown nicely since 2007 driven by the programs you see here on the right. We'll look forward and show you what it looks like in the next several years and what we see is the market demand from our customers driving accelerated growth to our top-line. So, we expect to grow our revenues from '11 of $4.9 billion to over $6.3 billion by 2014 based on customer announced rates. So driving this is our core business in production rate increases and the 787 rate increase is a big component of the revenue top-line as well as other new programs as they move to development and to enter initial production of volumes. So, an accelerating growth trend above and beyond what we've seen in the last several years.

Operating margins over the last eight quarters adjusted for cum catch-up adjustments and new program challenges reflect a solid high single-digit or low double-digit margin as reflected in the slide on the right here. Maintaining this margin over the near-term requires the benefits of the core business volume leverage, which we expect to capture and operating efficiencies that we expect to drive. These two benefits are going to working to offset several headwinds including potential for labor and supply chain escalation of volume based pricing, which is still an effect on our supply agreement with Boeing and the dilutive effect of some of the lower margin business that we have mainly on the 787 and the 747-8. So, it is a story of headwinds and tailwinds where the leverage we expect to capture efficiencies, we expect to improve on, but the headwinds – that the tailwinds of the headwinds in the business are also not insignificant Jeff mentioned them and so we're working little hard as we grow the volume on lower margin programs to maintain flat.

Now, over the long-term, we believe there are opportunities improve the profitability on the programs and continuously improve the core business and we intensely focused on that. In fact, the remainder of the presentations today will focus on how we intent to do that in terms of operations, product definition, and then how we manage new programs as we go forward. So, the hope for the takeaway after the session will give you a sense on how we intend to improve margins of a longer term and give us some headwinds in near-term.

So, I'd like to spend a few moments on the new programs, inventory, and cash flow so many of you are familiar with the new programs business portfolio. These are good long-term programs, but this is quite a long list. All great platforms with great customers and frankly quite happy to be on them, they've had their challenges on some of them. But nonetheless as we move into the recurring bill process over the next 10 and 20 years on these programs, they will find their way that the better profitability and ultimately we'll provide a lot of value for Spirit as we go through time.

From the accounting perspective, we ended the year with about $2.6 billion of total inventory and half of that is really expense and cost that we've incurred on these development programs. And so as we go through time, we expect to recover that inventory buildup as we got on the learning curve and move into production. And these five programs listed here are entering initial production phases and the investment in them is really starting to slowdown significantly as they move into a production phase and certification.

Looking at the inventory account you can see the new program investment is peaking as we move into '12 and '13, we do as we said before we expect some growth in '12 coming through the different components. We do see – they are starting to decline in 2013. This chart represents that the message here is as we see the investment peaking in the development effort in the company.

And as a result, we also see the cash flow coming positive, which our guidance reflects greater than $300 million of cash from operations. If you go back to '10, '11, and '12 and you adjust for some of the 787 settlements in 2010, what you see is a improvement in cash flows from '10 and '11 and now into '12 largely as a result of the advances being repaid and the new program coming on and peaking the investment as in the core programs growing in volume.

Spend a moment on financial guidance, nothing new here, that's the same guidance we talked you about during the first quarter and full year call. We expect $5.2 billion to $5.4 billion in revenue for the year 2012. Earnings per share is unchanged, $2 to $2.15 with the tax rate you see here. And then cash flow from operations greater than $300 million this year with the expectation of capital expenditures being the $250 million use of cash, which would generate a greater than $50 million free cash flow number for the company.

I want to spend much time here, I have mentioned many of these items as I have moved through my remarks, I'd encourage you though as the webcast read through these, I think if we wanted to talk about the several of them here right the growth in the new programs and margin headwinds and tailwinds we talked about the R&D and SG&A line clearly something we are focused on where we expect our R&D investments to yield the results in our business. There is near-term projects, there is longer term projects, there is some seed money being spend on future as scheduled. Much of the spend in R&D is focused on the near-term to where we can see a path are actually gained the benefit out of that expense in the next several years instead of 20 years from now.

And to summarize, look I take pretty exciting time, I repeat myself here that we've capture growth, it's accelerating growth is driven in our core businesses, which is great because what we do very, very well. Our new programs that we come out of our strategy with, the investment in those is peaking. We're are starting to see that and some of the data provided you today and cash flow is starting to come positive for the company and so we see a really exciting future as we look at growth decline in peeking investment in cash flow coming positive. As we look forward though, I show you we're focused on the productivity and efficiencies which we always are that with some of the new team members are Jeff mentioned that, there is a new or renewed interest and really driving some of the efficiencies that are actually pretty good.

So, I think it's a very big positive there, more modest investment, product refresh that can't probably tell you how important of that is for us where we are extending the 737 platform into the future with the MAX decision from Boeing. The A320neo is extending the life of the program, which certainly is favorable to our European operations. And then as we think about future wide body and contemplate product development there is certainly seems like the OEMs are focused on refresh versus clean sheet design, which is fantastic for Spirit. And then of course we'll always be very intended to the capital structure and liquidity given the business we are in, very successful there in the past and expect to keep that up as we move through the future.

And then the final business summary, we'll get to your questions, strong long-term market, great strategic positioning, we have talked about the growth, the earnings and the cash flows how the core business will continue to strengthen as the volume grows there and we've got to manage through this risk period of development programs. I think our disclosures and our filings on these programs, is extremely deep. So, I think if read through though you have a very good sense of what those are. And then clearly, we are a financially strong company given what we have managed through. Our leverage is modest by all accounts. We have managed out of the LBO and de-levered and we find ourselves in a very, very exciting spot as we look into the future from a financial standpoint.

So, I love to take your questions.

Question-and-Answer Session of Phil Anderson

Phil Anderson

Julie?

Julie Yates – Credit Suisse

Thanks, Phil. Julie Yates, Credit Suisse. So, you mentioned inventory should peak in 2012 and I think we have a good understanding in line of side on 787 and where that's trending on a per unit basis, but how do we think about the risk around the deferred production growth on the two Gulfstream programs and then the A350?

Phil Anderson

Yeah, there will be growth on the programs you mentioned certainly, 350, 650 that will grow over the next several years until we get them down the learning curve. The 650 will turn first obviously, because it's a later in the development cycle, where it's actually in initial stages of production. It will move, we expect into full production this year and then we'll come down the learning curve. And at some point over the next, I would say 2013/2014 we started burning off that deferred buildup. 350 is in a different place. It's earlier in the development cycle. We have just delivered our first section 15 earlier this year. And so as we move through you will see that one building and not leading until we get probably further beyond '14. 787, you've seen the improvement we are making there in those deferred balances. Terry will talk to you in a little while about the program in more detail, but I think from Jeff and I, we were very much on plan where we expected to be, but it's a challenging program given the spent as late as it is, but we feel good about where we are at. Hey, Doug? I'm glad you made it.

Doug Harned – Sanford Bernstein

It was not easy. Doug Harned, Sanford Bernstein. Phil, you described the – your top-line and outlook for 2014, so where you thought that was going. Can you say something about your margin goals when you look at profitability over the next three to four years generally where you see that heading and what are the things that could drive margin expansion?

Phil Anderson

Sure. Internally, our goals and this may not excite you, but given the dynamics and the mix about the current business, 7% net margins is a goal that I derived pretty hard internally. And then better than 12% operating margins is something that we try to keep the team focused on. We couch those as near-term goals, not long-term type of financial targets, not to get there, right, to get there, I talked about the headwinds or tailwinds and the real big dials to turn there are improving the core business, the efficiency in the 37, the 777s, giving 747-8 really back to where it was as a -400 and improving 67 and managing the tanker transition well. The 320, the team in Europe is doing very well. They are applying automation into a factory, that's built well over 3000 aircraft in the 320 and that we expect to get benefits out of that. So, I can't really overemphasize the amount of effort we are putting into the core business and trying to get efficiencies with different sets of values looking in different ways to do things. And then the 787, which is a big volume growth, and today we are booking that at zero margins, zero gross margins. And we are making good progress, but the challenge still remains not as much challenge as it was, but still a challenge in front of us.

And to the extent, we stay on plan. It will be a great long-term program and it by itself if we get it to where we need it in the timeframe right, we will dial at some point to positive margins. Terry has got the challenge of convincing Jeff and I when that is, because it's about sustainable profitability and that's where you want to take the program to sustainable profitability. And I think we are well on our way. Those are the biggest dials to move, Doug. I think core business 787 focus turn us to where we can actually show the margin expansion at the consolidated level.

Doug Harned – Sanford Bernstein

When you move into 2013, how does your – how does your new agreements with Boeing on the 37 and 777 play into this?

Phil Anderson

Yeah, the agreements we just say they were well-contemplated when our supply agreement was originally crafted back in 2004 and 2005 by Jeff and the team at Onex. This timeframe we find ourselves in now seven and eight years later was all contemplated the provisions on when we start, when we finish, and what happens if we don't kind of get to an agreement by the finish date of this provisions for that. It's all very thoroughly disclosed in our 10-K, you've probably read it. So, there is not a rush to get anything done on 2013, okay, on the pricing agreement. It's about really two things right now is one we need to make our customer successful whether it's Boeing, Airbus, Gulfstream whom ever as part of our equation. So, we want to price the product where they can be competitive. And then on the other side of the course is we have to generate the returns – we have to be long-term financial – financially healthy. And so that's the two pieces of the discussion right is how do we enable customer pricing and get the returns and stay financially healthy because there is a lot of agreement between us and our big customer about the environment – the pricing environment, the market environment, labor, different escalation. And so, we're going to have to just figure out what how that looks.

Financially, when we look at it, we shorten our block sizes on the program several years ago. We probably recall when we came out there were four years block sizes of four years worth of units in the blog. They are now roughly two years and so that two years was timed where we bring our contract block up to this reprising discussion and so there is not a lot of assumptions, I'm having to make to put into my current booking rates and to the extent that we won't able to get something accomplished by May of 2013 is provision in the contract that help me with some certainly on forecasting beyond that period. Cai?

Cai Von Rumohr – Cowen & Company

Yeah, thank you. Cai Von Rumohr, Cowen & Company. So, you project about 250 in CapEx for this year as same as last year and yet you've been in this period of heavy growth of new programs. As we get out to 2014 kind of what sort of CapEx level should we think about and secondly while it's not an issue today. It looks like we should be very solidly cash flow positive and burn that debt down so give us some rough thoughts about how you think about cash deployment when you get out there?

Phil Anderson

Sure. Capital although the things being equal right, capital should be on a downward trajectory when we get out in 2014 and on now. Now, that there is a period of where that's where the MAX is going to be maturing in its design for other better sense to how we're going to transition that airplane into the factory very high volumes. And so we'll have to figure out what that means to as it's too early tell, but I think in '14 and on given the current work statement, the current anticipated volumes from our customers, it's a period where development and volume investment in new programs in on a decline. We've been very consistent with our sustaining capital between $80 million and $100 million annually for sustaining requirements. And then of course now we will get development and expansion of our core business, which the core business expansion is a great investment for Spirit.

Such kind of where we find ourselves. I think it's a downward moving to 2014 and on given what we know today. Cash deployment rate is an interesting question where it's – we're going to be more selective on new programs, I think Jeff articulated that is something that we were going to do. Frankly, the clean sheet design opportunities in the next decade seem less than what they were in the past, because the customers are moving to more of a refresh type approach to product development. All of which says there is less investment in new product require probably over the next decade in my crystal ball. So, then it says we'll always manage cash balances and liquidity and the balance sheet given this is a cyclical business right. We have all experienced significant downturns in business in mid 90s after September '11 and so on. So, in deeply cyclical business, you always have to really maintain appropriate level of balances and firepower to manage through cycles.

And then certainly, there is the standard when we, when after we pay a dividend we think about these things right not near-term certainly, but there will be something that is as sustainable cash flows come out of the company and out of the business. We start thinking about things like that longer term. We are always going to look at other opportunities to grow the business through M&A. I think Jeff pointed out a couple of things. We have done and we have looked at in our relatively short life of the company. And I think what you can takeaway from that is we are very selective right, I think we are pretty picky buyers and we are savvy enough to know in the targets we have looked at so far whether it’s a good proposition for us or whether it’s not. So, I think those are the things we really think about when it comes to cash probably nothing that would surprise you there right. Sustainable cash flows, that was a real important goal right and then we see that turning this year. (Myles) flashing red here that means I've got less than a minute.

Unidentified Analyst

So, the slide you had with $2 billion of cash from the core programs 2005 through 2011 I assume. Is that cash from operations or free cash flow?

Phil Anderson

Free cash flow.

Unidentified Analyst

Okay. And so the $3 billion implied burn in the other programs is that an accurate assessment?

Phil Anderson

No, I think we look at the total investment is more like a $2, $2.4, $2.5 billion investment, so a negative outflow 400 million to 500 million.

Unidentified Analyst

So, then if you just looked at the core that kind of 300 million annualized implied free cash flow from the core programs. How quick do the development programs go to net neutral positions, that that will show up in the bottom line, is that 2014/2015?

Phil Anderson

Yeah, well, its program dependent right. As you know, they are all in different points in the development effort. They are all in different points in initial production phases. 787 is further along as you saw yesterday we are building 60 and 70 in the factory or 70, I can explain some factory carries that roughly 81s in the factory. So, it’s further along than an A350, right. So, each one of them has got their own timing associated with when they hit the average cost equals the actual cost.

Unidentified Analyst

And then the last one, when should do you go through the re-pricing, would you step back to the four-year blocks giving you'd have the visibility at that point?

Phil Anderson

We’ll address that when we get there honestly. Two-year blocks tend to be just more predictable right in terms of forecasting cost in the supply chain, but it’s something that it’s not a foregone conclusion that end up to your blocks, well we’ll make that decision once we get out there. Hey, I think that’s it. Thanks very much. I appreciate you being here again and have a good day.

Coleen Tabor – Director, Investor Relations

Thank you, Phil and again, thank you for your questions. Next on our agenda is David Coleal, Spirit’s Vice President and General Manager of the Fuselage Segment. David's experience includes leadership positions in automotive consulting and aerospace engineering and operations. Since joining Spirit in mid 2011, David and his team have been focused on building on our operational efficiency across Spirit. Please join me in welcoming David Coleal.

David Coleal – Senior Vice President and General Manager, Fuselage Segment

Check, check, okay. Good morning everybody. Hey, first of all, I just want to say its real pleasure to have chance to spend time with everybody last night also on the tour, and then this morning. I appreciate all your questions and obviously your interest in Spirit overall. What I want to do is spend a couple of minutes on this slide, because I think it's actually a pretty interesting story and there is a lot here besides just the pretty illustrations, but one thing I think all of you have seen is I think we have a great product portfolio.

If you look at the products we are on, we are on some of the best selling aircraft in the industry. We are emerging into the military sector. But more than that, you can see that it’s the diverse manufacturing capability and design capability you have from complex structures that are setup in modules to our customers for final integration to be fully integrated Fuselage structure on the 37 which you saw running at a 35 per month and many of you thought it was ahead its first flight last night being craned over to the next position to the 77, which is a fully functionally tested and stuffed completed assembly delivered to our customer. So, what this really demonstrates is the breadth and capability that Spirit can bring to bear for our customers based on their needs. So, something I think we’re very proud of, and I think this tells the story that there is a lot of capability that we can bring to bear on the future.

Now, what’s that translated to is really I think a great story from the Fuselage Segment as far as our top line revenue. If you look at the right hand side of the chart, we had strong revenue growth over the years. This is based largely on the fundamentals of the commercial aircraft industry and the demand and also the products that we are on. And I think we are very pleased with the rate increases that have been published by our customers. And again the products that we are on are really generating a lot of this top line revenue. And what this means for Spirit specifically is the business on the left hand side is the revenues is that we create over about half the revenue for Spirit overall. And this is going to grow as Phil alluded to in the next several years. This is going to continue to grow with the rate increases over time. So, again, strong core business growth and we’re really pleased with what we are seeing with the products we delivered to our customer and also the demand for the product out in the marketplace.

So, one thing that I think Jeff and Phil both alluded to and you will see kind of the similar comments in the slide from Alex, myself, and John is our focus on execution. And largely what I'm going to talk about today is our operational efficiency and our focus on execution. But what I want to do is just draw your attention to a couple of points in the slide. The first one and the last point is largely what I want to comment on is about reducing our operating cost, focused on quality, improving our margins, and really focusing our customers. So, what I am going to talk about here shortly is how we planned to do that and continue to drive those types of improvements.

But the last point is also very important. As Spirit has grown over time with the acquisitions of the different sites around the world and the different cultures, we have a real opportunity to try to drive best practices across the segment and Mike King in his office is largely trying to do that to make sure that we can take everything that we have learned over time and deploy it across our segments. So, we are very excited about this, knew our best practice sharing and some of the things we are going to show across the leadership team between me, Alex and John.

So, well it's nice to talk about execution. I think largely lot of folks and lot of questions I got over time in the last day or so has been the how, how we are going to do this. So, what we try to show here is illustrate the operational model that we've deployed. And you are familiar with a lot of these elements, but I think it’s very important how we've kind of combined these together. The first is our value engineering and John Pilla is going to talk a lot more about the detail here, but as you know very important that we get the design right upfront that we can bring to bear Spirit Exact and the value that we can bring those products to make sure we can produce it efficiently and cost effectively.

The second is operational discipline. And you saw a little bit of that yesterday on the tour. Very important that we make our plans everyday and you use that analogies of athletics having a good game is great, but having consistent good games makes for great season. So, it's no different from an operational perspective having a good day, having a good week, a good month, and a good quarter ultimately makes a good year and a great company. So, we are very focused on making sure that everyday our teams are engaged resolving problems and we can hit the ball out of the park.

And finally, how we bring to bear lean maturity, so it’s not just about running the daily operations, but how do we make sure we engage your teams to extract value and bring all the lean thinking to be able to continually improve the operation. One of the questions yesterday was you have some very mature products, can you continue to improve them? And the answer is yes. Right, we have yet to kind of crack the code and being the most efficient aircraft manufacturer in the world, so there is a lot of opportunity for us even in mature product lines to go in there and make sure we tap the employees knowledge to make the process to be improved overall, 67 or 47 examples, we have some great initiatives going on that are going to continue to drive our operational improvements.

And I also want to highlight the streamline underneath there, engaged workforce, Sam will talk about that. At the end of the day, this is a people-based business. Our employees are the best asset, the most, the greatest asset that we have. So, making sure we engage them to work across this continuum is going to be the key to our success long-term, excuse me.

So, one of things on the daily operational discipline when you saw this yesterday, I'll draw your attention to the kind of top left corner, it might be a little bit hard to read (indiscernible) books. It is the notion that this is a formalized system. What we do is everyday, our crew leaders get together with their teams and they go through their safety, quality, delivery cost and how the team is doing overall. May sound like, little bit like micromanagement, but the end of the day they are able to solve problems at their level. The faster they can resolve an issue the better the day is going to go for them. And what will happens is these cascade from there, they go to their product line manager, to their director, and the bottom right hand corner and the bottom left is the culmination at 10 o'clock, the teams come together, I go down there, they report on how they are doing.

The goal is not to report to me, but I am there to help. And all of the leadership team is there to make sure that we can help those teams if they have a problem if they couldn’t solve at the lower level get them solved that day. So, the importance of this is not to have a meeting, but to have a dialog to solve issues. And I think you've seen this. Other great companies do this and it's a very formal process and it really engages the team because they know at the lowest level they are being supported to make sure they can get their job done day-in, day-out. That alone though is not enough being able to execute everyday is great, but the next thing we do is we formalize our approach from a lean maturity. And I use the term lean maturity, because lean is a term that's thrown around quite a bit, right, lot of you guys are been to lots of different companies and people will say they have lean programs or toward the production system mentality.

One thing we are trying to do here is make sure we can demonstrate performance, right, look for evidence in the operations make sure the teams were engaged. So, that’s what we call lean maturity. And this is something where it actually trying to standardize and have standardized across all of Spirit. And it's fundamentally based on three elements, stabilizing the production system, because you can't improve it if it's not stable. So, lot of effort goes into making sure we have stable production system. Then we have folks trained in lean basics and then we deploy and move them to the improvement phase and then ultimately to what we call the lean production system. So, these are building blocks. And the thing is as you get more mature and more sophisticated you can actually apply more lean thinking in those elements of the operation.

And what we do is we actually measure this every crew lead, every product line manager has goals of how they are going to improve and their business. And I scored numerically we go down on Thursday mornings. We'll actually look for evidence of how they are doing. So this is a full process to kind of move the needle and drive value, drive out ways to continue to try to make sure we can improve how we do business. It's actually quite exciting because you go down and you have the team members present to you there are so excited about what they have done to improve what they do everyday. And we recognized success. We make sure that they know that we care about this and we have a formal weekly review on how we are doing across the business.

And just some simple examples and these go from the likes of the simple aspect of parts cleaning in John's operation to poll system in Fuselage. Alex will talk much more about a moving line concept they've done in Oklahoma which facilitates flow intact, Prestwick, how they view – some automation to improve the operation to our Malaysia facility, it's going to be doing work on the lean edge. So, the notion is expanding this across Spirit will not only allow for a higher probability success, but again improving our margins over time, because this is how you fundamentally continue to drive a business forward is make sure you have an improvement engine that allows people be engaged and know that they are capable of improving what we do everyday.

I think that’s my last slide. And I think the last couple of comments if I was going to leave you with kind of three points would be out here. First is, I think we have a great strong portfolio first in Fuselage Segment across Spirit. The second is as Phil and Jeff will talk about growth opportunity with the unprecedented rates that the airline customers are posting as far as their demand in the rates. We have a great opportunity for the platforms we're on to have growth. But finally, the notion is we have a robust operating model right. The teams were engaged. Everyday we are working hard to make sure we are meeting our goals and objectives, but more so continuing to improve our margin and drive value for our customer.

So, with that, I have 49 seconds, so only one question, okay. Go ahead please.

Question-and-Answer Session of David Coleal

Howard Rubel – Jefferies

Howard Rubel from Jefferies. You talked about a lot of success here. How do you benchmark relative to either some of your customers or some of you competitors?

David Coleal

Yeah. It's good question, I didn't have Mike jump in too, one thing this may sound like a contrarian answer, but we have a lot of benchmarks internally right. One thing companies don’t do is often look inward about the great things that are going on. So, within Mike's office from a CEO perspective we have a form where the teams actually present out some of the great things are going on across the company. We have 9 to 11 sites, 14,000 employees, so one thing we try to do is make sure internally do we know who is doing the best and then how can we deploy that first and foremost. And I think, that’s largely what we are doing in the short-term is kind of make sure we do that.

Second of all, we have our customers. And we can have a chance we visit with them quite a bit. Wee see what they do. We visit with all our customers on a monthly basis going to their sites. So, we have a lot of opportunities to share best practices and we actually do lean events with our customers, where they will come down here and will workshops with them also. So, I think we have two good avenues for benchmarking that allows us kind of make sure we are progressing well.

Howard Rubel – Jefferies

Just a follow-up I am sorry is what I meant is how do you stack up, I mean are you 20% of the way where you want to be 80%?

David Coleal

Yeah, great point.

Howard Rubel – Jefferies

Can you give us like kind of productivity metrics are you getting 3% productivity a year?

David Coleal

Okay. Yeah, so as far as benchmarking I'd say if you look at the team can jump in here. First of all, I'll give you an example on the lean maturity progression right. We are still pretty, how to say, pretty immature I'll call it right. So, we have a lot of opportunity to go from a lean maturity perspective in some areas. Other areas, we are much more sophisticated. I'd say if you look at what we've done on the 737 line from a lean perspective, if you look at the rate increases, the productivity we've seen I'd say we’re one of the best-in-class from our perspective on productivity there. Yeah, please.

Doug Harned – Sanford Bernstein

Doug Harned, Sanford Bernstein.

David Coleal

Hi Doug.

Doug Harned – Sanford Bernstein

When you take rate up on the 37 to 38 to 42 presumably once you are there you are going to capture benefits of operating leverage and you should I would assume get better margins. How long does it take you when you make that initial step to get through the added cost and sort of what is the disruption?

David Coleal

Yeah.

Doug Harned – Sanford Bernstein

How long does it take to get?

David Coleal

It's a great point. So, for example on the 35 per month rate break we did that in the October. I'd say it was one of the smoothest rate transition that we have gone through and Boeing has gone through. And I think they have commented on that. So, we have already start to see some of the benefits within 90 days of the rate transition. Some of the benefits we are seeing coming down our learning and unit cost curves. So, and the plan is to do the same thing on 38 right. We do a postmortem on how we did our rate brakes. We have a very formal process to one of the questions we ask or got asked yesterday we have a very formal process where every week the teams review, the hiring plan or suppliers, the facility, the capital etcetera to make sure we are progressing extremely well into our rate transitions.

Doug Harned – Sanford Bernstein

Thank you.

Sam Pearlstein – Wells Fargo

Sam Pearlstein from Wells Fargo.

David Coleal

Okay.

Sam Pearlstein – Wells Fargo

I guess just inline with question earlier is really can you point to any success that says you've gotten scrapped down from this present to that present or dollars of cost savings or anything?

David Coleal

Yeah.

Sam Pearlstein – Wells Fargo

As you started this process?

David Coleal

Yeah. I mean I'll start out with safety just as one example we are seeing already a 33% reduction in safety-related incidents due to the communication plan. Scrap, rework and repair, I think is already down. We said we are going to have another 15% reduction on that and we are trending to those targets already with the first two months of the year, over time is down 4% from the previous year deliveries are all on time and etcetera, etcetera. So, the operational metrics are clearly showing and demonstrating the fact that through the application of these tools and techniques that we are seeing those types of benefits and clearly the rate brakes that were showing the transitions. The smooth transitions are also showing that perspective also.

Carter Leake – BB&T

Carter Leake at BB&T.

David Coleal

Hi, Carter.

Carter Leake – BB&T

You talked about significant growth opportunities.

David Coleal

Yes.

Carter Leake – BB&T

Is that just production base, are you talking about possibly new content on any new platform?

David Coleal

Yeah. I think its both right. We were definitely from the rate perspective we are looking at 38 a month which is kind of a – we are going to be doing later this year or early part of next year. We are looking at 42 per month on the 37. All the other Boeing platforms have posted rate brakes. So, we are going to see the rate increases based on commercial demand. What that's going to do is facilitate the discussion about content, right. Our customers have constraints of their facilities. They don’t want to grow brick and mortar, so, we're going to have those discussions on what makes sense, how can we bring more value to them based on our capability. And if there is way that we can take flow days out of their process by bringing content back here, we're going to have those discussions.

Carter Leake – BB&T

Maybe clarify, what do you mean by content, would that be a new piece on an airplane, would that be systems integration?

David Coleal

Yeah, exactly. Probably more like system integrated – there are certain things that they do in the early parts of, for example, 37 line that could make a lot of sense to do here.

Cai von Rumohr – Cowen & Company

Yes, Cai von Rumohr, Cowen & Company. So, clearly where you are – one would expect that you are going to get some productivity improvement. Can you maybe give us some color on the important programs in terms of – are your productivity improvements inline with your plan or the better or some areas still lagging?

David Coleal

Yeah, well Jeff Turner will say not good enough, not fast enough, so this is (Montreal), but yeah, I think overall, we are progressing well. I would say that it's one of those where it's a journey getting making sure people kind of understand what they are capable of doing. So, all the numbers that we said earlier in my mind show that we are on plan from the operational perspective to meet our targets. Right, they get more aggressive – we have very aggressive internal targets too, right beyond some of the guidance that's been given to you guys, but we feel very good about how we are operating and how the teams are maturing on a daily basis. So, I feel very good about the operational performance of the business. Hi, Joe, please.

Cai von Rumohr – Cowen & Company

Could you compare or contrast the 787 versus the other programs you have 737 in particular, obviously, there the fabrication is completely different, that's your point, but from a lean standpoint, when you think not necessarily shorter term about 787, but longer term, does it make it challenging to pull cost out or less or more opportunities, since you maybe at the earlier stage of the fabrication, and let's have a big picture, big question, but as we think about how much room there is long run, you got some color?

David Coleal

Yeah, well, I think Terry will talk a lot about what they are doing on the 787 as far as cost reduction, because it's kind of a program within a program, right. So, the intent was first get it to market, entered in the service, and then we have a full team working on three elements of cost downs within the 87 arena. I don't think it's easier if you have a program that whether it's the 87 or 37 that's probably more about focus, right, want some things in high rate production like the 37, it's probably a little more challenging to take cost out, would be just because all the resources get moved to other new programs, right. The 87 has a dedicated team focused on cost reduction. Well, that being said, everything we are doing here, working with our supply base, working internally will help keep the margins of the 37, where they are at and hopefully improve them, right. So, and I think it’s kind of just two different approaches, right, the 87 has a lot of cost challenges as by design with the intent of getting to market, the 37 has good margins, but the intent is with the rate increases continue to maintain those if not make them incrementally better over time. Okay. Yeah, please.

Carter Copeland – Barclays

Yeah, Carter Copeland, Barclays. Just wondered if you might help us get some color on the risk on the transition from the 737NG to the MAX, things you are doing to prep for that sort of change and how we are going to think about, what that's going to entail for you guys?

David Coleal

Yeah, a great question. Buck Buchanan, I mean, he can give me some color commentary, but we have Buck on Boeing's MAX team. He sits with their leadership team. And I think the great thing about that is Buck's experience in building the 37 is unprecedented. So, what he is able to do is work with the Boeing design team when they talk about changes required to meet the mission requirements for the customer, he can then weigh in and say hey, these are the implications that will have impact on our production process and therefore the risk. So, I think that's been a great addition to have Buck on that team with his knowledge, and at the end of the day I think both Boeing and Spirit intent is try to make sure we make a great plane, but minimize dramatic change, right, just because you have a derivative program, it doesn't mean you want to touch everything. So, I think there is a very good focus on making sure that we can maintain the configuration control and make sure we meet the customer requirements, but not overdo it. Buck, do you want any comments or?

Buck Buchanan

Just like David you put it very well, that is the focus is to try to minimize the change both Boeing, Spirit, and all major partners who want to use the assets fully that are already in place not change a lot of processes that are used today and we use as much of the design as possible. So, that's the focus.

David Coleal

Yes, I think it's a lot of questions. You're lucky, yeah.

Peter Arment – Sterne Agee

Yeah, thanks. Peter Arment, Sterne Agee, just following up on that, is there an opportunity to put more automation in when looking at the MAX compared to today?

David Coleal

Yeah, I think the goal is right. The current production that we are trying to make sure we leverage a lot of those capital investments and it especially depends on where the rates go right if you go from 42 to 60 right, we talked about this yesterday, the production line is 60 we designed differently than maybe at 42. So, if we have a better indication what the rates are, we definitely try to do more automation versus some of the hand operations. So, Buck, I don't know if you have any comments on that either?

Buck Buchanan

Yeah, I'd say that there is not a focus to automate more processes than we are automated today. That would be opportunistic if that would occur. I think again what we'd really like to see is the MAX comes into production and the people that are building the MAX can't tell any difference than the day before when they were building the NG, so management disruption, management design, and management process is to bring the MAX up to full 42 a month rate as the NG phases out with zero disruption would be the goal.

Peter Arment – Sterne Agee

I am getting the hook. Thank you, guys.

Coleen Tabor – Director, Investor Relations

Thank you so much, David. Thank you for your questions as well. Next on our agenda is John Pilla, Spirit's Senior Vice President and General Manager of the Propulsion Segment. You may remember John, John successfully led Spirit's 787 efforts for several years. Oh, thank you, apologize, its right there on the script. People want a break. We are going to let John take a break first, I apologize. It is time for a break. We have 15 minutes scheduled. We will be back at 9.40, we'll tick down the clock, so please be prompt. Thank you.

(Break)

Coleen Tabor – Director, Investor Relations

I’d like to please ask you to find your seat. We will go ahead and get started. Thank you. Next on our agenda is, John Pilla, Senior Vice President of Spirit’s and General Manager of Spirit’s Propulsion Segment. You may remember John. John successfully led Spirit’s 787 efforts for several years and building on his experience with the 787 and engineering leadership. John is part of the team driving value engineering across Spirit today. Please welcome John Pilla.

John Pilla – Senior Vice President and General Manager, Propulsion Segment

Thank you, Coleen, and welcome everybody to Wichita, where if it’s not windy, it’s hot. Its not hot, it’s cold. I always a little confused, when I hear those introductions because it sounds like my dad is here and I guess that’s means you been in the business a long time. I do run propulsion in our structures and systems, some people ask me what propulsion structures really means.

My fuselage friends like to call mufflers and engine brackets, but hopefully as you saw yesterday our structure is a little more complicated than that. It’s very high-tech, composite to build and half a lot of Spirit Exact applications, which I will spend some time on talking today. Our product of course has been applied to all of Boeing airplanes. You can see we won some business on some new smaller airplanes with new customers.

Last year Cathay Pacific named Spirit their MROs flight of the year and Mitsubishi name us one of the top three partners on the MRJ program. In general, our MRO after market performance is up last year, as you saw in our results. We have our new pylon programs are all on plan. We rolled out the C-series pylon last summer and delivered at this fall to our customer in Canada and just recently we opened small factory in new Kansas 108 miles away that’s going to do some small tabletop build, drilling and filling holes for us to give us the floor space necessary to go up to 38 and then 42 on the 737 especially.

Lots of opportunities for us in this business and we will talk a little about those as we go. With the little brother in the family if you will, we are half the size a fuselage we are about $1.2 billion last year. Our sales have been relatively flat for three or four years, but you are starting to see the uptick last year mostly for new programs as they come online and of course the rate increases that we are seeing across the board.

The focus items that we are really interested in and working this year are these five. For propulsion, the supply base is really key. We buy including material more than 50% closer to 65ish percent of what we produce. So, we have a higher buyer ratio than fuselage a lower buyer ratio than wing products. It’s very important for us to figure out how to continue to optimize that supply base, bring them in to the lean manufacturing world, provide them engineering improvements that I will talk about in a little bit to allow them to make their parts better, faster, cheaper so we can all improve bottom lines.

And then the second piece that is really important to me based on my history and my learning and the great here I got in the last five years is making sure our new programs stay on track. We have to build design that we can make the right price. We have to execute the engineering. We have to get the programs complete and get them certified. So, we are spending a lot of time making sure that we have profitable new programs then we are executing them in an improving manner year-after-year.

As David mentioned I will be talking about value engineering, many of our items are known to you. We do design for manufacturing as Buck tells me, we ask the question, I can build that this way, can you design it, so I can build it and that’s been a journey for us. We have done a lot of design build adulteration for our customers. Some times I think we count upwards of 18 for Boeing in the last 18 years and we really improved how we design and build.

It’s a core competency for us value engineering. We still do improvements in design on our legacy programs. We use tools like knowledge-based engineering, which I will talk about that essentially says we can use the computer generated data. We can also understand the capability of our processes and how we build so we can make a design that’s profitable and easy to build with high quality on time and I will spend a little bit of time talking about Spirit Exact. Not a big mystery, but it’s a core competency of ours and we think it’s the secret sauce that makes us competitive.

So, most of you know that, that very early in a program the 80/20 rule of price to design. Before 20% of the design is done, I probably cemented 80% of the cost. So, we spend a lot of time early in the design making sure that the processes are know, the capabilities are understood for those processes, we are buying the right materials and we are buying the right technology to deploy so that the final design is at the lowest price with the best quality. We even included our suppliers in our design build teams. Our current label for those is integrated product teams or IPTs and they are still live and well in our new programs and also in our sustaining programs. This investment of course allows us to bring those projects home, so we can make money in the long run on recurring.

Knowledge based engineering is just one of the tools we use. The products on this page, where a C-series pylon on the top. Airbus section 15 A350 and of course the recognizable composite fuselage for the Sikorsky helicopter. But we use these computer tools and share data between all of the design groups so we can have the manufacturing capability understood and build in the product, the actual design in the part, the stress analysis, which is really key and ends up being one of the major ten folds in new designs and other technical fields like thermal, aerodynamics, propulsion and acoustics all sharing data and information and coming up with the design that includes knowledge that we have created from products in the past year. Hence the term knowledge based engineering.

These designs are repeatable. They are usually built on tools like CATIA V5 and allow us to do repeatable designs for other customers. We are still looking to build one of the things just asked this is catalogue. We have a catalogue, a pylon design as we can just turn the page and based on engine thrust, engine fan size, airplane gross weight, and we are really close to do that. We are able to build, build and create (indiscernible) models and run them in a matter of days and weeks instead of months and years.

Spirit Exact is a process that we put together that helps us figure out how to design something to reduce the nonrecurring cost and increased the quality and reliability of our products and do them faster and cheaper. So, these two pictures take a little bit of explanation. In the early 1990s we built the 777 using traditional tooling, which is the picture on the left hand size of the screen. You can see that there is locating jigs, there is holding fixtures for the lugs and then drill plates actually come in on top of that so you can drill all the holes through these hard metals. You can imagine what that nonrecurring cost would be for the tooling.

Today’s design is on the right hand side and that’s the 777 pylon, we simply hold the front engine mount and the half engine mount and the upper lugs and then we do all the drilling with machines automatically not with people and drill plates. We deburr, assemble, and put it together all the parts are self located using determinant assembly dimensions and holes and then the robots drill it off, much improved in terms of flow time, recurring cost, and also the nonrecurring cost. I mean if you look at the left hand picture, there are so many tools, where you can't even see the product. And the way we do it now in our strut building as we actually drill three twin isle airplanes struts 787, 777, and 747, all on the same drill machine and then pop them in their product line to finish put him together and stuff whatever systems are required.

You could imagine how this would reduce our variation and improve our flow times, which help us in our lean journey. And then finally I just like to mention what we do in research and development. We have 65 projects or so going at one-time, this is just one we're really proud off. Terry will talk to you about the 787 and Terry led our development team to build the shell with the stringers embedded in and bond it, lot to your fasteners. But if you look at that we still – we still drill and fill a bunch of whole to put frames in. So, this is a tooling concept we have with some automated fiber placement that will allows us to make fuselage shell on the shell panel that has stringers and frames all built-it and all bonded in. Further eliminating fasteners eliminating weight and cost and helping us with the next generation if you would of big round things whether the fuselage is earn the shells.

Okay, that's my last chart. Questions?

Question-and-Answer Session of John Pilla

Carter Copeland – Barclays

Carter Copeland, Barclays. Just wondered if you might put some numbers around sort of savings you've gotten in terms of reduction in flow time, cost reduction in recurring or non-recurring cost is obviously the picture is powerful, but how impactful have been either the bottom-line of the manufacturing metrics with numbers.

John Pilla

The 777 project is a good example. We cut probably 25 to quarter two to a third of that flow time between what I would call early 1990 design and how we flow it today. So, in less footprint with less tools, we can build more airplanes. So, in the same footprint we have today, we're going to go up to 8.3 and we're not at in wreck and more to do that.

Carter Copeland – Barclays

Yes, aftermarket grew over 30% last year and I would imagine a bulk of it's in your area. Can you describe what caused the growth and what you think is sustainable kind of number?

John Pilla

What caused the gross was two things, one, we've gotten out of an agreement with ADR where they were our leading marketer that it's – that was just a match that didn't work very well. There are more into after marketing, what I think of systems and more structures peoples. We built an international sales team and now we have be on the ground around the world. And thirdly, we finally started clicking with the airlines about being able to get the same product and services from us that they would from an OEM. We're the original design builders and we have long-term contracts with airlines like Continental and Southwest to do 737 thrust reverser work. Yes.

Jason Gursky – Citigroup

Good morning, Jason Gursky from Citigroup. David mentioned earlier that there are may be some opportunities going forward further to be more work done here is suppose to being done at the customer. So, more outsourcing essentially there are similar opportunities in your business?

John Pilla

I think there are ideas, the opportunity part depends on whether our OEM things it make sense financially, but for example light stuff 737 strut with all the systems. And I don't do that on 777 so, that's an idea whether or not Boeing interested or whether it makes sense and helps them not sure. The same kind of things that David talking about, the initial stage stuff that our OEMs do may be they want to move that work somewhere so, they can go up in rate without adding wreck and ordering. So there are ideas out there close in the opportunities would be the next step. Yes.

David Strauss – UBS

David Strauss from UBS. How much of your aftermarket business today? What percentage goes direct to airlines versus to Boeing and how does the margin compare between going direct airlines and then through Boeing.

John Pilla

I was looking for Mike Williams, he is here last night, but he is not here. So, it – I'd say – I'd characterize like this so on day one, June 18, 2005, 100% was going to Boeing and zero to the airlines. Now, it's even out a lot better, I'm still quite a bit going to Boeing, but a large chunk go into airlines and obviously the margins are different. I sold the Boeing for a price of course they have to get the margin so, there is another markup and our margins are better directly to the airlines to us because we can sell without as "more markup" small royalty involved, but doesn't make it uncompetitive at all. Yes sir.

David Strauss – UBS

Yeah, just one follow on to the aftermarket, it looks like there is continued strong opportunity in the segment. As you go out a few years, can you just talk about the balance between organic versus potential acquisitions as you think about your aftermarket opportunity?

John Pilla

Yes, there is a couple of things in my business that might help us in the future if you think of mergers acquisitions. Obviously we have to execute our business today. We have to improve our cash flow, keep our balance sheet hold before we could ever venture into that business, but there is a few key not even call suppliers. There is a few key items in my value stream that are very important to me, so I either need to keep a tight partnership or think about, hey that's something I should move into so, yes.

David Strauss – UBS

As you work on the new engine missiles, may be you have a harder burning engine, is there anything that is going to affect the way you build your products.

John Pilla

Yes, the engines do burn harder. We did some trade studies for the neo about a year ago and learned a lot from both Pratt & Whitney from the CFM team, I see these engines run in I don't know 5000 degrees that harder. So, we are looking at different technologies, one of the R&D projects, out of my 65 for example is build in a titanium honeycomb acoustic panel, where the titanium would be I call it well together, but it some scientific bracing that looks the core to the skin. So we look at that because that would be a potential replacement to go higher in temperature over traditional graphite epoxy.

David Strauss – UBS

So my follow on to that is we're seeing the core programs generating high margins and then sometimes if you transition to development programs, the margins have gotten impacted. So as you think about the transition from NG to MAX, do you think you are going to be able to maintain your profitability?

John Pilla

That is our stated goal and our manifest destiny, right, I need to – I tell my team philosophically we need to bring that product and it needs to be going at the same rate as the old one with the same margins, tough assignment, but as long as we can keep the build – the build plan as I talked about design build want to keep the build plan close especially in fuselage that should not be too difficult to accomplish. It's the new technology in the brand new way of building things that cause learning curves to go way backup, yeah. Okay, thank you and enjoy your day.

Coleen Tabor

Thank you, John and thank you for your questions. Next I'd like introduce to you, Alex Kummant. Alex joined Spirit in 2010 and he is our Senior Vice President and General Manager of Oklahoma Operations. His leadership experience in engineering management and strategy spend multiple industries. Today, Alex is on the forefront of our new program management of Spirit and he will give you an update on the wind segment as well as new program management across the company. Please welcome, Alex Kummant.

Alex Kummant – Senior Vice President and General Manager, Oklahoma Operations

Thanks, Coleen. Yeah, I'd like to begin by talking about the wind segment reiterating the point David Coleal made about the overall product range that we offer in the platforms we're on. We're on all of the right platforms when you look at 37 from a wing point of view, flaps and slats 320 leading and trailing hedges, good products on 77 slats and floor beams, and obviously the Airbus that the new Airbus programs at 350. We'll chat a little bit about leading edge spar and section 15 and an inbound fixed leading edge on A380. So, we are really on all the platforms we need to be and that is basically a great powering piece for organic growth in this segment. And of course, you are well aware of the Gulfstream wings that we produced in Tulsa.

Organic growth here is clearly strong driven by both the commercial and general aviation side. You are well aware of the growth rates driven both by Airbus and Boeing. And that really powers that underlying number as well as the 650 program truly beginning to hit its stride here in the next several years, that’s certainly a strong contributor to the top line. You are seeing this chart from both David and John as well is key for us. We have certainly challenges and our focus absolutely has to be within the walls execution. So, the first top two points there are critical. It is hitting our operating rhythms. It is driving all of the programs and supply base is a very big deal for us, particularly on the Gulfstream programs.

We have new program challenges. I’ll chat a little bit about that toward the end of the presentation here, but I'd like to take you through driving our core programs as well as new programs and then what that really means for Spirit as a whole. One of the messages really on the Wing Segment overall is we are a global business. Obviously, we touch large parts of the globe from the Pacific Northwest to the East Coast to Europe with Airbus and Tel Aviv and we have an operation in Malaysia. So, we are geographically diversified from a customer point of view as well as an opportunity to reach out and touch supply chain as well. So, that’s really one of the strengths of this business.

So, on executing core business, you heard a little bit about the levers that we are pulling. We are busily looking at what we can put into Malaysia from a cost point of view. It also ends up with moving our 787 fixed leading edge, an effective overall product flow opportunity, because we move that product to MHI in Japan. So, that’s a win-win for us there. The 320 products from Prestwick were moved there some years ago. David mentioned the strong push on lean maturity focus in the whole company and that’s really touching all of our programs as well as sort of lean plus, I’ll chat a little bit about the 37 moving line, which is really a rethink from a more traditional static single station type manufacturing approach to really putting the mechanic front in center and bringing the resources to the mechanic.

So, we’ll walk through a little bit of that. And you will see here again on the special focus issues David’s operating efficiency model and what John talked about on value engineering really comes to play here very specifically. Spirit Exact is one of the important arrows in our quiver here as we go forward in driving the profitability and cash flow out of our new programs.

37 flaps and slats just to give you a bit of a snapshot, we believe we can do in a single shift what we can’t even come close to doing with our production today. In other words, we could probably get to 42 a month in a single shift with what we are putting on the plants for today. And it is not a radical concept. You see this in other industries, but it is relative to our evolution in Tulsa and our really operations maturity in Tulsa, where it is a fully blown lean production system with an Andon System, where any mechanic can stop the line, any mechanic can call for quality help, material help, engineering help. And our goal really is to be able to drive in a single shift what we would have to do in multiple shifts, and frankly with significant additional capital otherwise. So, this is – it's really a cultural moment for us in Tulsa as well to truly execute this and then drive this stock process to other programs.

87 leading edge, we have made an announcement that we are moving this product to Malaysia. It’s also significant in that. It's a core Boeing product. The Malaysian team is really been outstanding in their work on the 320 product for Prestwick and they are bringing that same focus and intensity to this move. And we think it's going to work very well. And again, the proximity to MHI really makes it a win-win from the total in a sense global flow point of view. But Malaysia I think you will over the years continue hearing that name in book is a very effective operation and a way for us to manage our global footprint and really rationalize our costs globally.

I think another point just bringing to bear all the core technologies you’ve heard David and John talked about are really evidenced in the continual evolution at Prestwick. You see an operation that really began with more of a metallic thought process, now it's heavily involved in composites, integrated CATIA designs, a lot of automation, and they continue driving their margins and driving how they really approach all of our products technically. So, there has been a strong evolution since the acquisition.

Gulfstream, one example here, and I would refer you again actually back to John's, he had his great picture where he showed it before and after of a heavily tooled product and a Spirit Exact product. One of our trusts here is how do you drive new programs that are in early production phases, there are still things you can do. This is one of those questions about how do you continue driving margins? Well, we have our putting a third line in for the 280 program and this is really heavily using Spirit Exact thought processes and you will see lot less fixtures, you will see a lot of automation, and you will see labor hours come out of this product fairly dramatically. But here is an example of using Spirit Exact and continue driving margin and cash out of an existing program obviously here still in early production phase, but nevertheless a program that had already been already launched.

And here, good example on 350 both the section 15 and leading edge spars, we are more in the test unit phase here. But here again you see all of Spirit’s capabilities come together, large scale structures, composites, and Spirit Exact and the customer has been very impressed with the flawless fit up that was generated here. So, big challenges and the question is how do you drive a new program like this, how do you get to this point, where an initial test part people go well, this really fits.

My last slide here again to chat a little bit about new program execution, and there is no question, we have had a lot of lessons learned over the last six years. And as you look at this chart, you would say okay we understand that. You need to have very tight upfront control, how do you have a gated process? How do you have a good contract? You could have drawn this chart six years ago, but the real issue is how do you embed all of this, in your organization structure, in your systems, in the daily rhythm of how you manage your business, and frankly in your customer interaction.

So, I think, there is a lot of lessons learned here. And as we look forward with MAX, with Sikorsky, with Tanker, all these lessons learned I think are being very robustly applied as we go forward. And in the end, I think we would say that there probably is no program that has long robust profitability and cash flow that did not begin with strong new program execution and that’s something that we are truly driving today as a corporation. Thanks. With that, I will be happy to try to answer any questions. Yes, sir.

Question-and-Answer Session of Alex Kummant

George Shapiro – Access 342

George Shapiro with Access 342. The G650 had a big increase in deferred production as revealed in the K. Can you just go through where you stand on that program because that seemed like a higher number than I would have thought?

Alex Kummant

Yeah, fundamentally, let me just say this we are in a completely different operational rhythm than they were a year ago. Yes, we climbed a hill, but I think you would look at tack times, any operational cycle times as dramatically different from a year ago. So, we feel like we have made tremendous progress there. We are shipping product on agreed two schedules with no travel work to Savannah. And I think we are working well with that customer. So, a lot of progress over the last year. Yes, last year was challenging, and look, let me say this Tulsa has gone through a cycle over the last years, where it was a facility that had less than a thousand people and probably less than 50 engineer, today it's 3000 people and 400 engineers. So, there has been a lot of growing pains through that, but you see a much more mature organization in an organization that has had to learned to deal with a broader scope and much more complexity. And some of the operational issues you heard about certainly are a result of that overall learning. Sorry?

Carter Copeland – Barclays Capital

Yeah, Carter Copeland, Barclays. Just could you give us an update on the G280 where we stand in terms of contracting design how that settling down. What – how that is evolving over the course of this year, you’ve talked about at least, I think Phil talked about, having thing spot prices for some of these components and that needs to get organized…

Alex Kummant

Sure.

Carter Copeland – Barclays Capital

Lack of quarters.

Alex Kummant

Let me say there is no question that there has to be a strong focus on supply chain. You’d heard comments over the last months on some of the engineering changes that have affected some of our performance, but to put a finer point on that, a lot of those changes where really first half changes from last year, but it takes a long-time for those to flow through your whole system, your supply chain. So that’s not to imply that. Today, there is a huge churn going on. Sure, there is always kind of pre-TC changes are still keep going on. We’re still working hard on managing that, but it's – we're certainly also in a different place there than we were a year ago.

The supply chain is a real focus area and we have to truly drive now at this point drive it cost out of that. We’re working closely with Wichita. We are looking for opportunities to bundle buys across the entire company and drive these numbers down where they need to be.

Carter Copeland – Barclays Capital

What's the sort of timeline for that?

Alex Kummant

Well, we’re working at right now and that goes in iterations and in cycles. And I think this year there will be a lot of activity on that and then there are always opportunities to continue tweaking and driving Spirit Exact opening contracts backup with some part redesigns. And that’s going to be an ongoing effort, but certainly it's going to be a very strong focus here over the next year and the next two years. So, I’m being myopic and right I need to look over here in next time, I apologize there.

Carter Copeland – Barclays Capital

On the A350 in Prestwick?

Alex Kummant

Yes sir.

Carter Copeland – Barclays Capital

You’ve had a number of write-offs, you have – you mentioned that you’re in series production. You have a strong schedule position trying to put it all into context. Have you achieved from design and as the customer signed up, how you’re going to build everything yet or is that still a working progress, we're exactly on the major metrics to retire risk.

Alex Kummant

Let me defer that question, either to Mike or David Walker. Mike, you want to start from here?

Mike King

So today we’re in the final stages of finishing up our DFM on the leading edge. We should have that design finally completed and I said by June is all the stuff has been done built and delivered to our customers along through that were just final drilling stages we’re going through and we feel we’ll have them closed up by June.

Carter Copeland – Barclays Capital

And then at that stage were you have the production scheme completed or is that just the design?

Mike King

Design production is done. We went through where data drops is finishing up the final little pieces of the drawing and the data that we need on the drawings have the final design completed and deliver to the customer. So that phase is where we are at today. I just seen in the one picture there we’ve already delivered the hardware to our customer until the way to be put together.

Carter Copeland – Barclays Capital

Okay. Thank you.

Mike King

I look to my left, yes sir.

Cai von Rumohr – Cowen &Company

Yes, Cai von Rumohr, Cowen & Company. So you mentioned 200 plus lean major lean events this year like how many did you have last year. And secondly you mentioned tack times are down. Can you give us any kind of metrics, how much of it down, and what kind of impact did the delays and certification of the G280 and 650 have on your results.

Alex Kummant

Let me start with the lean events. We probably had five lean events last year. So this is a fairly dramatic for us to doing across the entire business and is core to what we need to do to drive Oklahoma. I’ll answer a question that wasn’t asked in terms of what are the benchmarking, where are you looking give me some sense of productivity. There is still a productivity gap between Tulsa and Wichita, first benchmark is to say we want to get to the Wichita levels. However, we measured it whether its revenue per person or some sort of earn value per person.

So, we have a gap there. We think we can close and we think we’ve got the right team to drive that. Let me give you a general sense on tack times and I’ll make a general comment about Gulfstream programs. We are operating probably in cycle times and individual processes that's something like two or three acts where we were a year ago. So, I just need to leave you with the feeling that the plant floor rhythm is entirely different. So we’re truly making progress there on both programs.

In terms of engineering impact, I guess I won’t quantify that for you, I’m not sure, I specifically can, I have to think about that. But look there is no question we’ve had an ongoing engineering effort over the last year that in theory wouldn’t have been there if TC have been achieved in both programs a year ago. So sure there is a financial impact and then that does ripple through supply chain and everything you do relative to early production. So, yes, there has been impact, but there is a lot of – I don’t want to necessarily hang that on anyone part here or another, but I just say collectively we are where we are on a forward going basis, we are certainly happy with what we’re achieving on the plant floor. And I think we believe that in the out years here, we can generate in both programs actually decent positive cash flow. Yes sir.

Myles Walton – Deutsche Bank

Myles Walton, Deutsche Bank. On the 650 again, what’s the cash breakeven unit number for that range on the 787, it’s a 125 to 150 unit number what is it on the 650?

Alex Kummant

I probably can’t answer that. I would say its still – that still probably out of a year and year-and-half. So I don’t know if you speculate on that. But I can’t answer give you a specific unit number.

Myles Walton – Deutsche Bank

Okay.

Alex Kummant

Its not going to be this year.

Myles Walton – Deutsche Bank

Right, now I wasn’t guessing that. And then the block accounts the 350 and the 250 for this G650 and G280 respectively. What is the year to those extents to?

Alex Kummant

The 280 is actually out to 18 I believe and 650 is out to 17.

Myles Walton – Deutsche Bank

Okay thanks.

Alex Kummant

Other questions. Okay thank you very much.

Coleen Tabor – Director, Investor Relations

Thank you, Alex, and thank you for your questions. Next I'd like to introduce to you, Terry George. Terry is the VP of the 787 program for Spirit. Terry has been there since the beginning of this program and today you will be giving us an update on the status and focus areas. Please welcome, Terry George.

Terry George – Vice President, Spirit 787 Program

Okay good morning, 787 program update. So the first chart just a summary as you know it actually certified and service the -9 is the fully and development right now for the strong customer base and large backlog 870 orders 56 customers. The pie chart on the right, can u give us an idea of the mix between the -9 and the -8, we continue to see more and more -9s coming to the order base.

The Spirit statement of work, the two pictures on the left are the forward fuselage and the leading edge and then the pylon noted in blue, you can see relative to the airplane those different components. Spirit has the design build authority for all of that. A little update aligning the 59 and 60 have been shipped to Everett and Charleston. This came up yesterday somebody ask, can you ship to forward fuselage is on the LCF at the same time and you see in this really cool picture there that yes you can and we did. So, and in all cases, over the last six months, the condition of assembly has been excellence. Boeing has been really drilled with it. We're planning on delivering around 40 airplanes this year. Phil has mentioned that earlier, chipset 62 on the pylon has been delivered. The wing components of which part of it goes to MHI line 75 has been delivered and 61 to Everett. Again, we continue to improve our quality and have on-time deliveries. The 787-9 engineering is – it’s a really good story. That program is on plan in terms of both the schedule in the weight. Spirit has released about 25% of the engineering with no delinquencies and so, we’ll keep that up.

Showing Spirit’s industry leading capability again, we did some -8, we have designed analyzed testing authority we're doing that right now in the -9. That second picture is a slit tape, many of you saw this yesterday, this monotonic is built from quarter inch and half inch slit tape. It takes about a million feet of that slit tape and again the airplane that we’re looking at yesterday I was pretty excited because we are on track to have a 4.5 day lay down. So, we're putting million feet of carbon fiber down in 4.5 days that’s really critical to our success in utilizing our assets and minimizing any future assets.

We have a fully integrated supply chain so what that means and again we saw a part this yesterday with the nose very well its fully integrated with tubes, wires, panels that allows for these systems integration to happen very quickly at the end of the line. The center picture there is the flight deck that’s led up and again many of you saw that yesterday. So, what we try to do with 87 with the large modules just to bring that in fully stuff you have heard that term and so it really within the last month and half of the build cycle. The airplane goes together is tested and then delivered.

Large-scale automation very impressive factory again many of you saw this yesterday. We're taking full advantage of the digital information out of engineering and we use it over automated sales and that’s going very well and we continue to have good improvement. The improvement curve is still steep right now. So, that’s excites me. Our delivery record is good and like I mentioned early the condition of simply is a 100%. There are fiber planes in service and Spirit is now supporting those airplanes.

One of my focus areas is the cost reduction. So, I am working really hard with the Boeing leaders. We've been doing this about 15 months. It’s a systematic approach that’s very regimented. We do this daily, weekly, monthly, quarterly. I talked to several of you yesterday that I do in fact go to Boeing every month make sure that we're staying on track. Mr. Turner and the leaders of Boeing we meet quarterly. So that they can hold us accountable and making sure that we are doing what we need to do on the cost reduction.

Couple of examples, so really its three legs of the stool, the value engineering, its production flow, that’s the SCA. The picture on upper left is what we call the upper cab. Today it's made out of aluminum and titanium starting with the -9 and then carrying on later with the -8. It’s all aluminum. What is that mean to the program that’s about $150,000 of unit savings and it also took about 100 pounds out of the airplane. The production flow we had a good view of the factory yesterday. We talked about it is in just about the labor, but we have to pay attention to the non-labor things like cutters and we had -- again we had a good conversation about making sure that we are fully utilizing cutters to maximize the cost reductions that we need.

And then again on the supply chain and this has been brought up a couple of times, but we have done and should past on all of our detail parts and assemblies about 5000 of them took us about nine months to do that. So, we are having conversation with supply base on re-contracting all of that and that’s really a huge leverage to bring cost down that’s what we're seeing so far.

As for us rate readiness again I try to point out yesterday some of the areas in the factories were put in to finish and touches on 10 airplanes a month. The majority of our people are in place that we won’t go up with a whole lot of people in terms of the rate increases. So, the people stability is there. We will continue to training and get them ready and then in the supply base, we have a rigorous process of making sure that the supply base is rate ready. We visited 25 suppliers last year. We will visit 25 more suppliers this year and as you see green is good. So, in terms of the ramp up we feel really good about where we are.

In summary, again we have strong order and backlog. We are Spirits continue to demonstrate our capabilities both on the design side and on the production side. And we have lays or focus on cost improvements right now. Questions?

Question-and-Answer Session of Terry George

Carter Copeland – Barclays

Carter Copeland, Barclays. Terry, I wondered if you may talk about the cost curve that’s implied in the first 500 unit block and the sort of improvements you are planning on. When you talk about these cost improvements like the 150,000 per unit savings from the initiatives you’ve mentioned are those counted on in the cost curve that you guys are modeling, are those incremental to your plan financial performance?

Terry George

Well, I’m going to answer it in a couple of different ways and again we talked about just a little bit. It feels to me like in the factory even with all the automation that we're going to have two curves and one is right in the middle of and its pretty steep curve, will be a point in time, where that one is going to flatten out. On the other hand, when I look at that would be the improvement curve, but when I think about the cost curve and now I’m thinking about the supply chain there is a lot of material cost embedded in this program. That curve is flatter now, but it gets steeper later. I mean we need a little bit of latitude later on to build and renegotiate this contract, which is what we're doing. So, we really have a couple of different curves and the aggregate of that is continuous preview looking cost curve.

Carter Copeland – Barclays

But if you had a lot of success on the second curve in those initiatives, whether they would be supply chain or with those be incremental to your profit expectations?

Terry George

Yes, we have a plan. We have a timeline. We have a value that we need to get to on the cost. We are on that plan and it looks to me like especially in the first block that and again I have to convince Jeff and Phil of this that it's promising. It's promising in terms profitability.

Carter Copeland – Barclays

Thank you.

Kevin Ciabattoni – KeyBanc

Thanks. Kevin Ciabattoni, KeyBanc. Can you highlight first maybe what your view is some of the biggest remaining risks in terms of -9 development and maybe some of the kind of major milestone remaining there?

Terry George

When I think about our production system again internally I’m thrilled with the way that we are step up and rate, I don’t have any concern with our supply base. The -9 like it's phenomenal right now. I don’t expecting anything there. The fear would be any anomalies throughout the entire supply base. I’m talking about for the entire airplane or any anomalies any surprises and probably kind of what we saw recently in the fuselage. But for Spirit I'm not concerned. Yes sir.

Doug Harned – Sanford Bernstein

Doug Harned, Sanford Bernstein. On the -9 when you say its phenomenal, could you walk through some of the differences that you see is most important going from the -8 to -9?

Terry George

Good, okay. So, good question. I will answer two different ways. Kind of the same theme where that you heard on other program. We at Spirit experience have refocused program management. Right, so it’s very comprehensive list of things that we do. We're using that on the -9. So, we paint it tentatively that. Boeing at the same time has done something very similar. So, there is a lot of attention in basic program management that’s going on relative to the similarities of the differences between the -8 and -9. Obviously the -9 are more seats. For Spirit, the monotonic is the same. It’s really internal into less expensive frames, less expensive beams, those type of things that we are implementing. So, it’s real thought on weight and cost as much as anything for Spirit. Is that answer?

Doug Harned – Sanford Bernstein

Yeah, I was just trying to get a sense of weight and cost. Can you quantify that it all or can you give us a sense of how much difference there really is between these two airplanes?

Terry George

Well, so the -9 of the MAX, the gross weight is significantly more. And it is right on plan for the right target. Relative to cost, it's a little more ambiguous, but all indications are that it will significantly improve the cost picture.

Howard Rubel – Jefferies

Howard Rubel, Jefferies. To change subjects a little bit all of this technology and all of the experience are yet – are you at the point, Terry or even go to Mr. Turner to say, here is three of the things that we can do help the product line expand in another way go after sales or after other fuselage systems are something of that sort.

Terry George

Yes, and we have recently so, one area is small composite parts and the automation of that. We have technology. We have patent on that. We at this point in time, we couldn't show the business case good, it just wasn't enough small parts. We are talking with Boeing to see if we can get a more volume there. So that would an example of and really that's taken the fiber placement technology that you saw in the electroimpact machine and making that transition to small part. So, yes it's a lot slower than what we'd like to see. Yes sir.

David Strauss – UBS

David Strauss from UBS. Boeing as we move to 3.5 a month, it sounds like you guys are still at 2.5 a month. Can you talk about when we expect your rates to lineup with Boeing rates?

Terry George

Well, again when you think about the airplane cycle in the lead-times we are on some of our products at 3.5 a month and we will be just make a real simple by the end of March everything will be a 3.5 a month.

David Strauss – UBS

You talked about, I guess talking with your supply base. Can you just talk about what would be the incentive for the supplier to change their price now you are giving them more work, other going to have part suppliers, they are going to have give you assembly what would they go ahead and change pricing.

Terry George

Another good question, so part of our strategy with that is combining other programs so not just 787 so, we talk about rate increases on the 37, we talk about 37 MAX. We have really good conservations with the supply base considering all programs and what they can do for them, what they can do for us.

Ken Herbert – Wedbush

Yeah, hi, Ken Herbert with Wedbush, I mean it sounds really very positive and encouraging on the 787. Is there anything still you'd highlighted that still keep you up at night or risks around the program that outside of obviously from Boeing standpoint that you are still dealing with.

Terry George

Well, I'd like to said early, not really having said that it is very complicated airplane, a very complicated manufacturing plan. We're validating that the robustness and the consistency that we can get. But I think that still worries may little bit. Can I do a 1000 of them, like I think I can what I'm seeing, but everyday as we mature, we had a little more confident.

Joe Nadol – JPMorgan

Joe Nadol of JPMorgan. As you think about going from quadrupling your rate from 2.5 to 10, the next two years and we think about for those that were in the tour yesterday the different areas of the whole process, which are the parts that you rank them perhaps in terms of stress that you get when you think about quadrupling your rate, is it the fabrication the tape winding, is it the stuffing of the systems, is it getting the rates to shift what would else…

Terry George

I'm going to rank it as in the fiber placement as the one that we got conquered and again we saw lot of evidence yesterday that the latest technology that we can bring that home. While the second is the automated fastening, again it's just a – it's more complicated than on metallic fuselage, just the new launches of the lower tool and the upper tool are they work together. But again we're seeing a lot of success that would be the second. I'd have said systems integration and testing was number one a year ago, but we've matured in that so quickly that I'm not too worried about that one. Others? Okay, thank you.

Coleen Tabor – Director, Investor Relations

Thank you, Terry and thank you for your questions. Next I'd like to introduce to you, Sam Marnick. Sam is our Senior Vice President of Corporate Administration and Human Resources. She led us through four long-term labor contract negotiations and it's focused on aligning the entire Spirit team for success. Today, she will update on the progress we've made. Please welcome, Sam Marnick.

Sam Marnick – Senior Vice President, Corporate Administration and Human Resources

Good morning everyone. As Coleen said, I'm going to focus on the Spirit team and give you some examples of how we aligned the team for success going forward. For those of you that one on the tour yesterday, hopefully you've got a glimpse of what our teams like. Hopefully you saw how highly skilled our teammate is, how involved and how engaged our workforce is as you took the tour around.

Earlier this morning, Jeff showed you the global footprint. The footprint of our operations and also of our workforce and as you can see here highlighted on the diagram some of our major concentration of employees. As we have grown since 2005 in all of these multiple locations, we look carefully how we've grown. We've taken a careful approach to our workforce planning to ensure that we've got the right skills, in the right place, at the right time, but importantly at the right cost as well as we've gone through that.

To the going global team, we also need a supporting people strategy that focuses on the key areas to make sure we get the maximum value at our team and that really focuses on the three areas for us. The first is about driving performance and deploying performance management throughout the entire organization and that's the individual level. So, we know it's relevant to the individuals, but also within the team and within the enterprise. And if you had chance to visit any of our operations over the last few weeks, you may have happen to get across some dialog session, some can say type session, where you would see many members of our team in dialog with senior leadership about what it's going to take to be successful in 2012 and beyond and what is it mean, how can I move the dial on in terms of the performance.

That just one example, another area we've concentrated heavily on and David Coleal talked about this in some detail is about embedding daily management and operating disciplines on the floor and throughout our organization. So, we spend a lot of time on that this year getting that in place on really getting the energy in the drumbeat behind that and what kind of triggers and drivers will drive that those important changes and what we want to occur is not just initiatives and the initiatives and we're just doing it for now and for the share. We're trying to drive so that still in the foundation of the way that we do our work. So, it becomes the Spirit way of doing our business.

Second area of focus for the people strategy really is about building the team. It's about identifying, acquiring, and developing our global talent, not just the now, but also for the future. Jeff, Phil, and others have already talked about the challenges of the next phases the new programs and as we go into rate increases what is all about entail, what type of competences that we need for the future. But also what type of skills that we need, we need to look carefully our skilled metrics and how does that lineup with what we need?

We also need to look at how we can move and deploy our resources to revenues are. We have to ensure that our work for us is agile. So that we can meet the needs of the demands of production and that's going to take increased on the job training. But also it takes us strong focus on knowledge transfer, not just the institutionalized knowledge that we've acquired through the decades within our facilities about new knowledge. We have learned a lot of lessons since we began in 2005, that how we're going to apply those lessons that we've learned going forward. So, we don't just keep learning, we apply that learning as we go forward.

The third area and I’m going to spend most of my time talking about today is building internal and external relationships and one of the relationships I’m going to particularly focus on is labor. We are heavily unionized environment. So how do you work with that? How do you drive value from the labor relationship and collective bargaining agreements and how do you realize those productivity and efficiency gains that we are talking about?

When we began in 2005, we put in place five-year contracts and those contracts served as well in terms of getting us up and running for a new company. That those contracts came to provision in 2010, what we are going to do next? I need to think really carefully about how we setup although for the future. What we ended with up as Coleen alluded to was long-term agreement decade long labor agreements with our key union. I am going to talk to you more about what those entail and how we go with that.

First phase in the process it was really looking at what we had, figuring out the basics as they were. We are long cycle business we know that, but it also a cyclic business. So, there is ebbs and flows of productivity as we go through the cycles are traditional model worth that we would higher up as the rate increases and then a lot of the team would go as we ran back up again we may lose some of that skill and knowledge over the time.

Global competition increasing, ever increasing so the cost of labor, the agility of labor is ever increasing so how do we deal with that? Our previous model we had above market wages and guaranteed wage increases. So, what do we need for the future? We need more wages that more aligned with market, but also we need more performance based pay. So, that we are sharing the risk and the reward of the business performance.

The third areas we looked at really was this win-lose environment the traditional labor relation usually entailed, who is on top this time, you heard it that before. So, some of the always feels like ever winning in the winning party and some negotiations or the losing party what is that mean? When it would be great going forward if it was win-win that we are all pulling for the same thing and everybody involved felt like they were pulling in the right direction. So, all of these things that you look at it and you talk about it, it’s not an incremental change to a contract language. It’s a fundamental cultural shift in the way that we manage labor, the way that we craft out collective bargaining agreements and the way that we work with our labor unions.

So the next stage in moving towards is longer term agreements was working with the unions really managing the dialogue proactively engaging the dialogue early on about the challenges that we just talked about. Surprisingly and not surprisingly there was a lot of similarities in those discussion, a lot of synergies in those discussion, maybe coming from different perspective at different times were a lot of agreement on the key points. So, we was starting off from really from the same page.

If we do things the same ways as we always have done them, we will get what we always got and it once that is well for the future. That really created the burning platform for change. What it also created was the union have to say and where a key role in the leadership of that. We play a key role in managing the health of the company making sure that the company stays healthy not just be now, but as we move forward in to the future.

It also means that the union is got to take an active role in helping us manage the drivers that impact our performance. So, we heard a lot over the last discussions around capacity, productivity and performance, difficult subject areas, but we have to have the unions pulling in the same direction as we are pulling in order to get the performance numbers that we need.

We also have to be transparent in our messages. So, we have to educate the unions and how the unions understand the implications of decisions and performance cost in terms of the decisions make, decisions are made going forward. So, all of that is a proactive dialogue around what do we need for the future, but essentially we need to be all pulling in the same direction.

Moving on to the contract objectives, the collective bargaining agreements, as I mentioned we have got four long-term agreement in place, 10 year agreements and the new one is of the collective bargaining agreements they were all different depending by the group, depending on the payrolls, however, there were four philosophies that remain true throughout all of the agreements.

The first is stability. The long-term agreement like I said decade or around decade long agreement. That stability provides stability for our customers, but also allows us to ensure the union is competitive. It ensures that we are working on things like improving productivity versus we do contract negotiations every three years. So, that’s one of the benefits of an enhanced long-term agreement.

The second philosophy is on flexibility. In order to maintain a healthy business through the ups and downs of productivity, we need flexibility within the workforce, more flexibility than we had before. We need to be able to send people to where the work is required, but also we might to change the way, which do work.

Third area, compensation, we need compensation that’s aligned with market, but also business performance as well. And the fourth area we need to work and manage ever increasing healthcare cost escalation as well as the support needs of our employees. All of those fundamental philosophies the foundations of the collective bargaining agreement really will help us keep the company healthy and the core team intact through those cycles, win-win outcomes as it works.

And if you ask me about where I think we are today? Well, I think clearly at the leadership from both the unions and the company proactively aligning on the messaging about what needs to get done and I will point your attention to the picture at the bottom left of the screen there. This is kind of the milestone event in our history. This is the first time, where the senior leadership of the IAM and for the company address pact hall of unions institute and managers about the way forward and how things need to change.

So, in summary I would say, we have really structured these long-term agreements around the areas that we think will impact the business going forward. The long-term made sure the agreement give us stability. We have these newly focused collaborative agreements focused on the health of the business and the flow of productivity within the business. We have performance compensation with company and bargaining units specific goals and we have a pact to managing healthcare cost escalation and we believe that health is build on the strong foundation for the next few years to come.

Any questions? Yes sir.

Question-and-Answer Session of Sam Marnick

Howard Rubel – Jefferies

Howard Rubel, Jefferies. If we look at the contracts and you look at sort of the way you might envision the labor force evolving, how would you think about the hourly rate or the -- where the hourly rate did might very well evolve over the next several years?

Sam Marnick

In terms of the hourly rate so in terms of the hourly contracts we have IAM, UAM and IBEW so electricians and mechanics basically within that. If I look at the nuances of the contract and they are different. The hourly rate, the escalation, let’s talk about pay escalation first of all. If the escalation of pay is managed so that the overall competitiveness of the unit becomes more in line with market, some areas of our workforce, I would say would benchmark, over market now. The contracts allow us to regress our measure back to market more in line with market. So, what it does provide for in addition to that is incentivize his pay. So, when we perform well and the company’s goals were met and the game sharing metrics were met, which is over and above performance target that generate funds in order to provide reward payouts as well. That would need to be figured in to the labor as well. Yes sir.

Unidentified Analyst

(Chris McCray). I think what Howard was getting and mistaken was he was looking for an evolution of what your average rates might be given retirement trends am I right. I think can you comment on whether you are going to see any benefit from the younger workforce over the over next few years and also secondly comments on where you are competitively across your union structure, across your labor structure. Can you prove yourself in a tiering system I mean Boeing is up here obviously you are below that because you got an agreement, when you split out, who you benchmark against now and in effect do you have any labor cost advantage over peers that you might look at?

Sam Marnick

Kind of two facets to your question, first in terms of demographic, our demographic have changed slightly since we divested in 2005. The average age of the early population has come down somewhat in that time. So, our average age has lowered over time. Its kind of a double edged saw as you have a less tenured workforce come in you may have a younger workforce, but you also have a less experience workforce as well. So that on the job training, knowledge transfer really – becomes really important as the profile of your workforce is changing.

In terms of the competitiveness of our labor rates and where we kind of rank on where we are, you got it right, Boeing is the OEM, so that's a different tier from where we are, where we typically benchmark against. If you looked within our proxy, you can see the type of aerospace companies that we look across the peer group benchmarking. We benchmark in two – from two different perspectives. One is in terms of the national benchmark look across the aerospace and having manufacturing, but we also have to look in terms of the local element, particularly when attraction and retention may become an issue. So, there is always that localized factor as well that plays in, and as you know, which time particular is an aerospace center for our skill set. Any other questions? Okay.

Unidentified Analyst

Try again, I mean, if I – when I read these contracts, it looked to me like it was virtually no escalation in some of this. And then you tiered the structure for some of the contracts into certain mature, certain middle, and then entry level workforce. And if we kind of blended it all, it would seem to me and you've said it in some form, but I was hoping you might quantify a little bit that the average wage even if you take into account certain amount of productivity and our gain sharing comes down. So, if you would kind of help us a little bit and use I don't care if you say it's at a 100 today and it's at 98 in three years or at 97 in eight years, but I believe that if we kind of look at that versus what Boeing is doing, it kind of giving 2% to 4% you are not given that. So, how close it might have been right in the way I am thinking about it and kind of get some numbers as opposed to some nice HR feel good comments.

Sam Marnick

I am not sure I am comfortable talking about actual numbers. Phil do you want to jump in on the numbers or? You don't feel comfortable either.

Jeff Turner

So, let me attack this. I think, directionally you are absolutely right if part of the fundamentals are what we are driving two things, one is to get off of this cycle of a fundamental escalator and all the contracts and get back to that (mortar) of keeping the company healthy and keeping the team for the future intact. So, there is really two pieces. The piece of breaking the entitlement mentality is saying we got to get 2 to 4-year whether that cost base of the world supports that or not or the price base of the world supports that or not, we've gotten away from that, but we have also said look when the company is success, we are going to share the success. And we are doing that through the variable part of the pay. So, that's the first thing that's going on. And I think we have done a great job of changing the dynamics and having a much more, we are all in this together mentality in the team.

The second thing that's going on is that because of the tiering as you bring new people into the organization, you don't bring them in at the top end. Now, we can fix the labor rates pretty quickly by hiring a lot of people. Okay, but we don't want to do that, right, we want to hire just the number we need, because we are trying to drive productivity as well. So, you are going to see some improvement as we shift the demographics, but you are also going to see improvement in the productivity. Now, underlying all that, it's labor escalation. I mean, it is there on the individual basis. So, we've got to manage those two or three levers and keep the cost of labor component of our business improving. Okay, so that's our objective as we get net labor productivity, overhead labor, direct labor support labor. So, that is the objective that we are driving or driving that into our performance metrics.

Unidentified Company Speaker

Just to finish on that, I mean I thought that when you showed us the boards yesterday when we are in the various different places and then number of them, there was the gain sharing that we could see being measured. So, to the degree that you are working it all the way down to the factory and that's probably getting some feedback. I guess that's the ultimate example.

Jeff Turner

So, it is absolutely the ultimate example, Howard. And this is some we got to do every single day like David was talking about it, a good day makes a good week makes a good, I mean, that's the level of intensity. And frankly, we are overcoming a great amount of what's mistrust over the years between labor and management and we have worked incredibly hard at doing that. And I had been convinced, great and growing portions of our teams that we are indeed all in this together. And if I can be so bold, you can leave, you and the other investors can decide on a minute by minute basis, if you are going to stick with us or not. And so we had to earn that trust everyday. And our employees are more and more understanding that and becoming more and more adapted the idea that and I say this over and over. There is no (segregating). The only people are going to drive performance is us and nobody is going to come in and drive a force and nobody is going to give us work if we don't earn it.

And so we forge and continue to forge this mutuality of the future, if you will, if we perform together, we’ll share it, and frankly have also talked the idea that when things are tough, they are going to be tough together, because this business will cycle and we had to break this idea, and Sam mentioned it very, very quickly, we had to break this idea that we are going to hire a bunch, and when the thing cycles we are going to lay a bunch off. As we started day one at 51 years of age average age and you go through one cycle with your average age 51 and hire a bunch and then the lay the newbies off, and if it's a 10-year cycle, you don’t have any of the knowledge you got to have for the future. So, we say keep the team for the future intact. So, you've seen us in stress the situations go to three-day work weeks instead of furloughing the whole team. You've seen us go to long-term contracts.

If you look in those contracts, you will see a whole series of things that we say we'll do prior to layoffs to keep the team intact. And the quick protocol for that is an engaged workforce that don't just demand and escalate it on their wage every year unless it's earned by the whole company. So, that's where we have driven and I think have a tremendous opportunity here to have full engagement in the workforce and drive the productivity we have to drive. I have no passion on this.

Sam Marnick

Thank you.

Coleen Tabor – Director, Investor Relations

We have just one last slide for you from Jeff for some closing comments. So, I ask him to come back up.

Jeff Turner – President and Chief Executive Officer

So, so much for impromptu and back to the script, I really do appreciate you all being here today. In closing, I think we tried to give you a feel for the risks and the opportunities associated with our business, clearly the risk, I'll address those first. Clearly, the risks are in the execution of the new development programs and the rate increases in front of us, and of course, the opportunity is the great fundamental solid nature of our core business, our ability to execute a strong backlog. Hopefully, you walk away with a sense of the strength of the team that we have built and then we are continuing to build a sense that our core business is performing well for us and we will continue to focus on that and continue to drive efficiency and productivity, continue to work our way through the risk registers on the development programs and improve those over the ensuing quarters and years as they become frankly our core programs of the future. And certainly, our intense emphasis on managing our costs and driving productivity.

We say inside the company this is our productivity moment. These are the things we have put in place to manage it and it’s now up to us to drive as we get more volume to drive the productivity throughout the system. Again, I want to thank you all who are online with us and thank especially those of you who made the effort to travel out here and be with us. I hope you found it value added, but we appreciate the opportunity to tour you around our facilities and to talk to you directly. My thanks to my team for the presenters this morning and for the candor, I know when all the candor you had wanted, but it was I think pretty straightforward and I appreciate the team for doing that. And my final – I want to say thanks to Coleen and to the logistics team who put all this together and made it work for us. So, thanks to all.

Coleen Tabor – Director, Investor Relations

So, I’ll just follow-up that with one more thanks to all of our speakers and thank you to all for attending and for your excellent questions. And that concludes our presentations for today. So, if you are online you may logoff now. Before we depart I would ask that you would take a moment to fill out our survey and give us some feedback about this event. And remind you that we have to go lunches in the room next door to…

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