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Boeing Looks for Spirit AeroSystems to Cut Back Production

June 29, 2020

On June 19, 2020, Spirit AeroSystems received a letter from Boeing. Based on the June 19 Letter and further communications between the parties on June 22, 2020, Boeing has directed Spirit to reduce its 2020 B737 production plan (applicable to MAX and P-8 shipsets) from 125 to 72 shipsets, which includes 37 shipsets to be produced and delivered over the balance of the year and 35 shipsets that have already been delivered to Boeing as of June 19, 2020. Boeing indicates in the June 19 Letter that the reduction is due to COVID-19ís impact and accumulated inventory of Spiritís B737 products; such inventory was accumulated pursuant to the partiesí prior production rate agreements.

The B737 MAX grounding coupled with the COVID-19 pandemic is a challenging, dynamic and evolving situation for Spirit. During this time, Spirit plans to work with Boeing to manage the B737 production system and supply chain.

Given the substantial production plan reduction, Spirit could breach the financial covenants under its credit agreement in the fourth quarter of 2020 without an amendment or waiver. Spirit is in communication with its lenders regarding this matter, and intends to work with them expeditiously to obtain appropriate relief from its covenants.

Spirit AeroSystems sees the following risk factors:

∑ The COVID-19 pandemic has had and is expected to continue to have a material negative impact on our industry and business.

∑ The COVID-19 pandemic along with the B737 MAX grounding presents significant challenges to our liquidity. The COVID-19 pandemic presents the potential for impairment charges and increased bad debt expense provisions or credit losses, which could negatively impact the Companyís results for the 2020 First Quarter or future quarterly periods. Further, our factoring arrangements may expose us to additional risks in light of the pandemic.

∑ Our business depends, in large part, on sales of components for a single aircraft program, the B737 MAX. Further suspensions or reductions in our production rates for the B737 MAX as well as our other programs, as a result of the COVID-19 pandemic may have a material adverse impact on our business, financial condition, results of operations, and cash flows.

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