Spirit AeroSystems Holdings, Inc. (SPR) Earnings Call Transcript & Summary

Okay. We'll get started. Good morning, everybody. Welcome to Spirit AeroSystems 2022 Investor Day. I'm Aaron Hunt, Director of Investor Relations. We've got a lot of good information to share with you today. But before we do that, I need to remind you that forward-looking statements, goals, objectives we make may include in our discussions that are likely to involve risks, which are detailed in our news release and our SEC filings. I have a few logistics to cover with you before we get started. Presentations will be available on our Investor Relations website as well as a replay of this event. Then we'll have a question-and-answer session today. In-person questions will be taken live. So please wait for a microphone before asking your questions. Ryan and Jessica will run a microphone to you. Virtual participants can submit questions any time during the event using the question-and-answer box on your screen. Then the virtual questions will be asked by a moderator during the session. And finally, technology exhibits as well as lunch will be available in the room next door for which to our participants after the event. So let's take a quick look at the agenda. First, Tom will get up and talk about our business and strategy. Then Mark was going to get into some details about our segments and our financial outlook. Sam, Duane and Kailash will go over some of their key priorities, and then Kevin will give you some details about how we're thinking about research and technology as well as our quality journey. And then we'll finish the day, as I mentioned before, with a question-and-answer session and closing comments from Tom. So with that, I'll turn the podium over to our first speaker, President and CEO, Tom Gentile. Tom?

Okay. Well, thank you, Aaron, and good morning, everybody. Welcome to Wichita. We're thrilled to be able to have an in-person meeting and actually a hybrid event where we have a lot of people who are joining us digitally. But we appreciate the effort that so many of you've made to get here to Wichita because part of what we wanted to show and communicate are some of the changes to our factory, which have taken place over the last couple of years. And we're proud of those, but also wanted to be able to highlight how much impact that they'll have as we start to go open rate as we start to emerge from this pandemic. And an event like this obviously takes a lot of planning. And so thank you to our Investor Relations team, our audio visual team for pulling everything together. Timing, of course, is not great. Right now, we're still emerging from the pandemic. We knew we would be where we are on that. We, of course, couldn't anticipate the events in Ukraine, which is really a humanitarian issue. It's a military issue. And so again, we couldn't anticipate those events, but we decided to go forward with our in-person event anyway. We have a lot to talk about in terms of some of the changes that have happened to Spirit where we're going and the future. And so the presentations this morning will give you a much better sense of that. But I thought what I would do is start off by really going back and looking at the challenges that we faced the last 2 years. And there have been 2 major crises: the first was the MAX grounding and then the subsequent halt in production, which occurred at the end of 2019. But there were the 2 tragic crashes in Indonesia and in Ethiopia. And what that resulted, first, was the plane got grounded. But Boeing kept building, as you recall, at 42 aircraft per month. Eventually, they had 470 aircraft that were stored at different locations around Seattle and other places. We kept producing at 52 aircraft per month, thinking that it would be a fairly short-lived grounding and that everything would resume again and we would be able to burn off any inventory. We ended up at one point with about 140 ships that store. And you can see the pictures of the fuselage stored right across the street on Air Capital Flight Line, which is adjacent to McConnell Air Force Base. And so coming at the end of 2019 when Boeing made the decision to really stop production for a period of time, that was already a major crisis for us. MAX represented half our revenue. We make 70% of the structure of the MAX. We're a proud partner on the MAX. It's a great aircraft, but obviously, that created a lot of challenge for us. And then really just a couple of months later, we were in the middle of the pandemic. I mean the early signs of the pandemic were already apparent at the end of January 2020, that the Singapore Airshow was almost canceled, it wasn't canceled, but the attendance dropped precipitously in 2019 in February. And then in mid-March, everything shut down. It was about March 13 or so when all the lockdown started. And you can see that the decrease in air traffic, it dropped 96% by the end of March. 2020, which is the biggest drop in the history of the aviation industry. Even after 9/11, air traffic only dropped about 15% or 20%, and it recovered in about 3 months. And as you can see, it's been almost 2 years, and we still have not recovered to the levels that we were at before. In fact, domestic traffic has recovered faster. It's about 85% recovered to 2019 levels, but international traffic is still far below where it was. And so the overall is still down. The picture at the bottom shows some of the things that we did. We had to take a lot of precautions. These are some employees making masks. In fact, this picture is of a factory we set up at the end of March and into April 2020 to produce ventilators. And that's the governor of Kansas, Governor Kelly, Laura Kelly, on the far right. But we produced over 20,000 critical care ventilators, which we shipped around the world to help fight the pandemic and also to leverage some of the excess capacity and the workers that we had. At one point, we had over 1,000 workers trained working in the factory, 3 shifts. When we started by air, our partner was building 3 ventilators today, we got it up to 500 -- or 3 ventilators a week, we got it up to 500 per day and ended up shipping 20,000 around the world. So that was the 2 crises that we faced throughout 2020. And it had a big impact on us. Our deliveries overall fell 48%, but the MAX went from 606 units in 2019 to 72 units in 2020, a drop of 90%. And that, of course, had a big impact on our revenue. We were at about $8 billion in 2019, dropped to $3.4 billion in 2020. And our free cash flow went from about $690 million in 2019 to negative $870 million or so in 2020. So it was a big drop. Liquidity was very important. And because of that, obviously, we had our credit rating downgraded. And we went from an investment-grade credit rating to something far less. We had 3 separate drops and we had to renegotiate our covenants with the banks on 3 separate occasions. So very challenging time. And we responded aggressively. The first thing we did is we had to keep employees safe. We kept producing right through the pandemic. Yes, deliveries were down, but even the MAX, there were still some deliveries. And on our defense customers, there were a lot of deliveries. We never missed a single delivery during that time. We put in place protocols. We had people wear masks. Some people worked remotely when they could. But the vast majority, 85% of our people were here the entire time. We did, in fact, they'll get all of our U.S. workers back by June of 2021, and we've been there ever since. So we managed to get through the pandemic, keep delivering, but kept our employees safe. We also had to align our cost to lower levels of production. And we did reduce our commercial headcount by more than 8,000 people, and we took out over $1 billion of costs, about 40% of our total cost. So we had to make some very difficult decisions under very tight timetables, but we had to do that in order to stabilize the company. And of course, the last thing was liquidity. We had to take a lot of liquidity actions to ensure that we had enough cash to weather the entire storm. Part of that was raising bonds in the debt market. Our partners here from Bank of America really led the charge with us on that, and we appreciate that. We had 2 different offerings both ended up being oversubscribed substantially. So that was good. We also mutually terminated our acquisition of Asco, which was a $450 million acquisition. And we negotiated a significant discount with Bombardier to reflect the different environment that we faced in the pandemic. And so in total, along with reducing capital expenditures and cutting our dividend, it was about $3 billion worth of liquidity actions that really put us in a stable position while rates were down. But our focus coming out of the pandemic is really to come back as a stronger company and a more diversified company. So there are 3 key issues. First is this diversification. And I'll show you some of the concentration levels that we had, but it was imperative for us to think about how do we get a broader base set of customers coming out of the pandemic so that we could really be in a stronger position. And what we've talked about is a vision of where we are, 40% commercial, 40% defense and space and 20% aftermarket. The second big priority is delever. We took on an additional $2.1 billion of debt during the pandemic that took our total debt up at one point to about $3.8 billion, and we lost our investment-grade credit rating. So one of our focuses is to pay down debt. We've said we want to get $1 billion out between 2020 and 2023. And we've paid down $300 million already. Mark is going to talk a little bit more about this, with the goal of getting our investment grade credit rating back and reducing the interest rates that we pay, and so therefore, lowering the total interest expense so that we free up cash flow for innovation and growth. And then the last thing is to drive margins is to get back to margins where we were back in 2016 when we were stable, producing one type of major aircraft on the MAX side and we're at 42 aircraft per month. So to get back to 16.5% margins, once the MAX gets back to a level of 42 aircraft per month. So these are the 3 major strategic objectives that we have. Let's go through these a little bit more. In terms of diversification, going into the pandemic, it was very clear we were too concentrated. We were too concentrated in terms of original equipment, 98%. We were too concentrated in terms of commercial aerospace, about 95%. Boeing represented 79% of our revenue in 2019, and the MAX was 50%. So this level of concentration meant that we traded at a discount to our peers. Structures is, by definition, lower margin than some of the other segments of aviation. And we don't have as much aftermarket typically. I always like to say we build things right the first time. We don't need as much aftermarket. But nevertheless, the concentration did cause us to trade at a discount to our peers. And you all know the numbers very well. And so it was an objective for us to say, how do we start to diversify? And yes, it was difficult in 2020 when the market was so low for us to think about diversification, but it was that important strategically that it was worth making the effort. And so the biggest thing that turned this around was the acquisition of Bombardier's assets, their aerostructures assets. In Belfast, Ireland, this was the old Short Brothers, which has a huge legacy, goes back to 1908 when the 3 Short Brothers built the first wright flyers in Europe in partnership with Orville and Wilver Wright. And then they also were very active during World War II building aircraft for the U.K. military fight. Also had an operation in Casablanca, low-cost country, very competitive, very highly skilled and then an aftermarket operation in Dallas. So it came with a significant amount of assets. But what it really did strategically is help us along our strategic journey as we thought about how can we continue to grow and diversify. First, it gave us a lot of Airbus content. On the A220, we build the entire integrated composite wing. It's plug and play. When we ship it to Airbus in Montreal now and mobile, they simply connect it. So all of the hydraulics, everything is in working order, very active thing. And that made us one of Airbus's top 10 suppliers and their biggest structure suppliers, even bigger than Airbus Atlantic and what is PAG. It also gave us a lot of business in terms of business jets, 4x the size. Bombardier becomes one of our biggest customers. We have now significant work packages on the Challenger and the Global Express and Business Jets is going to become a big market for us and a very profitable one. In addition, we got a lot of aftermarket. It doubled our aftermarket content and gave a significant maintenance repair and overhaul, and I'll take you through it. But more on Airbus, but similar things in terms of flight control surfaces, nacelles and thrust reversers. But it gave us a significant base in terms of aftermarket. And it even gave us some defense. We didn't know it when we were first started doing the due diligence, but they were bidding in Belfast, the Project Mosquito with the U.K. Ministry of Defense, which is an attritable drone, a loyal wingman. So it's similar to the Skyboard program in the U.S. So fundamentally, it gave us a much broader portfolio and a foundation for future diversification. And as I said, it made us one of Airbus' largest customers. It gave us growth opportunities in Business Jets and a significant aftermarket capability. So it was really a transformative deal for us. And what it allowed us to do is to think differently about our business. So previously, we reported, as you all well know, in terms of the structures we built, fuselages, which is about 50%; then wings, which is about 25% in propulsion, which included things like the pylons that hold the engines to the wing, the thrust reversers and the nacelles. That's how we presented ourselves. And that was really how Spirit did operate once -- when we separated from Boeing back in 2005. But over time, as we started to shift, it became less and less the way we operated. And certainly, after the Bombardier acquisition, we could think of our business differently, very differently in fact. And so we shifted to these new segments: commercial, defense and space and aftermarket. And in our last call, our fourth quarter earnings call, we now present our results with these segments. And so we fundamentally have changed the way we look to the market and the way we operate and the way we are organized in that. So we changed our organization, and we aligned around these 3 segments. So Sam Marnick, who you'll hear from a little bit later, leads our commercial group. Duane Hawkins, you'll also hear from Duane today. He leads our Defense & Space Group. And Kailash Krishnaswamy leads our Aftermarket group. So they'll each describe their businesses, but this was a fundamental shift in terms of how we present ourselves externally and how we're organized internally to go to market. So let's just talk about commercial because growth is important there. And of course, Boeing and Airbus remain critically important. And the other thing that remains critically important are narrow-bodies because our backlog is still $35 billion, 85% of which is narrowbodies. And as domestic travel recovers, and it's recovering first and fastest. It favors narrow-body aircraft. So Boeing has said they're going to increase their rates. They've said they'll be at 31 aircraft per month in early '22. Airbus is also committed to increasing their rates. They remained at about 40 through the pandemic. They're now at about 50. They're saying they'll be at 65 by mid-2023. Even the A220 is going to go up from about 4 today to 14 by mid-2025. But in addition, there's a lot of other growth opportunities that Sam will talk about. I mentioned business jets. We have a significant relationship now with Bombardier. We also still have our relationship with Rolls-Royce on the BR725, which is the engine for the 650 at Gulfstream, and we make the entire nacelle and thrust reverser. But we won the nacelle and thrust reverser on the RV3070 which is the engine that's going to go on the Falcon 10X. So we have a significant opportunity to continue to grow business jets to $500 million by 2023 at very good margins. And then there's other emerging opportunities in commercial, like electric vertical takeoff and landing. And even our fab business, as we continue to grow that for rate with 737, we have one of the biggest fabrication businesses in the world. We make more than 38,000 parts, 3-, 4-, 5-axis machining, skins, chemical processing, we have a very significant opportunity to continue to grow fabrication. So commercial has a lot of growth opportunity. We also have a very big opportunity in defense and space, and Duane will go through this, but we see 5 areas that are natural adjacencies for us as we go forward. The first is next-generation aircraft programs. We already build aircraft like the P8 and the KC-46. Those are military derivatives of Boeing commercial aircraft, the 737 and the 767. But going forward, we're bidding on work with Bell for the FLRAA, the future long-range assault aircraft for the Army's future vertical lift. That would replace the Black Hawk helicopters. We're also working on the B-21. We are 1 of 7 suppliers that was named to that program. In addition, we've been able to grow a number of other programs in defense. Next-generation effects. Missiles in effect, are big structures, and there's opportunities for us to contribute to that. Hypersonics -- when we bought FMI in the first part of 2020, we became one of the leaders in a high-temperature material called 3D Walden carbon carbon, which is used in high-temperature applications like hypersonics. So we can play a significant role there. Unmanned aircraft systems, attributable drones, loyal wingman. These are structures. And what we're doing with Project Mosquito in the U.K., will play very well for what we can do in this area. And then lastly, space. The vehicles that they're talking about to go into space and even come back, again, our structures and play very well into the core strengths for Spirit. So we have a lot of growth opportunities here. And then in aftermarket, this is also a big opportunity. I would say we have a very strong niche position on some high-margin repair activities as well as spare parts. So before we did the Bombardier deal, we had our Wichita operations, and we could repair flight control surfaces like slats and flaps and elevators and rudders as well as nacelles and inlets and thrust reversers but for Boeing products primarily. When we did the deal with Bombardier, we got those same capabilities on flight control surfaces, nacelles, inlets and thrust reversers but on Airbus products in Europe. And so we were able to start cross-pollinating those capabilities immediately. We then were able to do a partnership with EGAT in Taiwan so that we had an Asian base of operations where we could do those same repairs. And then we were able to do an acquisition, a small acquisition of Applied Aerodynamics, and they repair radomes. So a very specialized structure, which is at the nose of the aircraft, and it tends to be what is at the nose, and it is behind it are all the communication and radar equipment. So it's a very important structure. And as you can imagine, because it's at the front of the nose, it gets damaged a lot, bird strikes, things like that. And so they need constant repairs. So we were able to put that in the U.S., in Europe and in Asia. Where we go from here is we keep adding repairs and capabilities, and we keep adding geographies like China, Latin America, eventually the Middle East. And this is how we think we can continue to grow our aftermarket business and maintain steady growth to get to $500 million by 2025 at margins in excess of 20%. So this diversification effort is starting to pay off, and we're starting to see some results. So when we go back to 2019, Boeing was 79% of our revenue, and everything else was 21%. This year, as we reported in our 10-K and in our earnings result, Commercial was 79%, of that Boeing was about 56%, and Airbus was about 23%. So we've already seen some significant diversification there. Defense is already 15% of our business, and aftermarket is 6%. Now the Defense, Duane is going to go through this. Unfortunately, a lot of the work that we're doing is classified. So we can't go into details. But what we can say is that we've been able to win a lot of new work because we have capacity available. Now it's true that domestic travel is recovering first, that favors narrow body. International travel is taking longer to recover. And so that is going to impact wide-body production. And widebody production may not ever get back to the levels that it was. So in other words, the 787 was at 14 aircraft per month, unlikely to return to that. 777, at one time back in 2016, was at 8 aircraft per month. It may not return to that. So we've been taking a lot of that excess wide-body capacity and shifting it to defense. So back in 2016, we had just 1 program above $1 million. Today, we have 24. Today, we have about 500,000 square feet in our plants that are dedicated to defense work. In a couple of years, it will be 1 million. So that gives you a sense of the growth that we're experiencing with just the programs that we're on as they get into production. And then going forward, as we continue to win new work, that organic growth will continue to grow. And ultimately, our vision is 40-40-20. So it's going to take us some time to get there. It won't all be organic but that is what we would like to see Spirit is have a very broad-based business with multiple customers and different revenue sources coming from these different areas, which will help us be a more solid stable company and one that is ultimately more valuable to all of our stakeholders, our customers, our employees, our suppliers, our investors and the communities in which we operate. So in terms of delevering, what we want to do is pay down the debt that we took on during the pandemic. And we've said we want to pay down $1 billion over 3 years. We started off in 2020, we paid off a $300 million note. We have another note in '23 for $300 million that we'll pay down. And the goal really here is by paying down debt, we can regain our investment-grade credit rating and ultimately, get better interest rates to lower our interest expense. In 2021, as we reported, our interest expense was $240 million, which is significant. Obviously, we would like to drive that back down to where it was a few years ago with investment-grade credit rating. So this is the objective here. Mark will go into a lot more detail, but this is the idea on the delever. In terms of driving margins, we want to get our margins back to where they were in 2016 when we were much more stable. Back then, we were producing 1 form of the 737, it was ENG. We were at 42 aircraft per month. What we'd like to do is get back to those ones. Now lots has changed. We have more headwinds with wide-body production, but we've also made a lot of progress. And so let me just go through some of the things that will help us drive our margin. First is we're redoing the flow of some of our factories. So you've got a chance to see Plant 2 yesterday, where we build the 737 fuselage. When we started back in 2019, we were going up to 57 aircraft per month, it had been built up over 50 years. Things had just been put where they fit. And it wasn't coordinated, it wasn't lean, it wasn't linear. What we've done since is we've completely changed the flow of Plant 2. We've moved a lot of the big intermediate sections out. I'll show you that in a second. And we streamlined and made the flow more lean so that we can improve quality, delivery and productivity. One of the things that we did is we took out the Section 41, the forward fuselage. That used to be built in Plant 2. There were a lot of crane moves associated with it. We moved it across the street to what we call the Northeast manufacturing facility. We are now extending that so that we can go up in rate over time. So this is adding about 120,000 square feet of new capacity. We've also moved out Section 11, the wing box. Part of it has gone to one of our suppliers, Orizon in Chanute. The other part of it is going to our facility down in Tulsa. The 747, we built the wing box, many components of the wing box in Tulsa. That building, about 120,000 square feet, is now being repurposed to Section 11 for 737. And so we've been able to free up over 125,000 square feet in that Plant 2 to make it more lean by adding these additional facilities to build the subsections of the fuselage. So we've also put in place a lot of automation. One of the things you saw yesterday is what we call [indiscernible], but it's our 737 floor beam automation. There are about 45, 48 floor beams in every 737 MAX-8, but there are as many as 400 different configurations. And what the automated line does is it automates that so that we can improve quality and productivity. And you can see our flow time reduces, our touch time reduces, our work in process inventory reduces, significant benefits on the core operating metrics. We also put in place a new global digital logistics center. You had a chance to see that. It's a state-of-the-art warehousing system. It's the same type of dematic system that Amazon uses in its fulfillment centers. It's got 26 stories. It's different levels. Things fly through there at about 25 miles an hour. We can store 2 million pieces, more than 90,000 individual parts. But very importantly, we have 8,000 unique kits now that we can retrieve stock and send right to the factory floor. So it significantly increases our efficiency. We've also put in place a lot of robotics. One of the things on our A320 program over in Prestwick, Scotland, we put in place a new state-of-the-art resin transfer molding production system for spoilers. There are 10 spoilers on each line. We can go up now to rate 80 on this new line, highly automated and really state-of-the-art production system as well as control system. In addition, we just put in place a new thermal plastic clip line in our Kinston facility. You can see 1,500 individual clips, 500 different part numbers on every A350. We've now pulled this in-house. It's highly automated and a lot of robotics to produce these thermoplastic clips. In addition, digitization, we've put in place a factory floor digitization, which we call Floorsight, and this helps us track the flow of all of our goods as they go through the factory, and we can manage it in a centralized way. We've got a labor optimization program, we call it Opticrew, and we're able to get the right worker assigned to the right aircraft at the right time and make sure that they have the right training and the right certifications. We've also put in place visual work instructions. So every task that our mechanics do now, they can go to their computer terminal, and they can see, not just written work instructions, but they can see visual work instructions, pictures, diagrams, even videos to help them do the job that they do. So this improves quality and productivity. And then we've also put in place new tools like this torque methodology that we have, where we have stored all the torque values for every single fastener on the 737 in the cloud, and mechanics can pull that off before they do their job so they know exactly what torque value they need and confirm that the tool they have has the correct torque value. So these are some of the digitization methods that we put in place. But 65% of our cost comes from supply chain. And supply chain is very important. We have a 6-pillar program that we've been using to drive supply chain efficiency. The first is clean sheets. We've reverse engineered virtually every part we buy, over 125,000. So we know what every part should cost in terms of labor, material, overhead, profit. Then what we do is we have a process to help the suppliers get to those costs. We call it our strategic sourcing process, S3P. We have teams that meet every week and go through a very disciplined rhythm. We have an operating mechanism with these meetings. We have scorecards, and we drive execution to get to those clean sheet values. We've also supplied -- provided a lot of supplier support to help suppliers get to these levels. During the pandemic, we provided direct support to about 600 suppliers worth $2 billion. A lot of that was contract extensions, but it was also inventory purchases, raw material purchases, processing, engineering, quality, logistics, we provided help across a lot of different mechanisms to help them get to the clean sheet values. But we also put in place centers of excellence where we have capability to produce our own products. This is our fabrication division that Sam over sees. We make 38,000 different parts, 3 and 4 access centers of excellence, 5 access centers of excellence, skins, stretch pressing, chemical processing, very comprehensive. In addition, we use a process that we call Waves, where we bring in groups of suppliers, and they bid off on different work packages. So we start this on a Monday. By Thursday, we're awarding the work, and we've been able to see some significant reductions and also improvements in quality and delivery. And then we have a very rigorous transfer of work process. We've transferred over 26,000 parts in the last few years, again, to get to the right parts with the right suppliers, with the right cost and the right quality, at the right time. So this is how we have been able to drive supply chain savings. Now when you add it all together, our strategy is this. This is how we summarize it. Our vision is to be a diversified design and manufacturing champion in aerospace. The strategic priorities in terms of where we want to compete are Commercial, Defense & Space and Aftermarket. And then we have very focused emphasis on execution requirements. How do we get there? And it's about having a very strong make buy, a world-class supply chain, the digitization that I talked about, continue to invest in innovation, and you'll hear some more about that and build a world-class team. And within that, we have a very strong set of values: transparency, inspiration and collaboration, and the core elements of our DNA, which are customer service, safety, quality and delivery. And that's how we think of our business. And as I talked about, the 3 strategic objectives: diversify, delever and drive margin. So just to summarize, Spirit is emerging from this MAX crisis. It's been a tough 2 years, but we're a stronger, more diversified company. Domestic travel is recovering faster, and that's good for Spirit. 85% of our backlog is narrow-bodies, which serve domestic routes. We're also able to really turn a potential challenge into an opportunity. Our widebody capacity is something now we can repurpose to defense work and win new defense work. And so as we think about our business going forward, obviously, we want to get back to positive cash flow. But we want to do that by paying down our debt and reducing our interest expense, getting back our investment-grade credit rating, and then getting back to the 16.5% margins through all the initiatives that I just described and ultimately, helping to diversify us to a 40-40-20 business in the future. So that's how we want to emerge stronger from the pandemic. And we'll go through a lot of the details this morning, and then we'll have some opportunity for question and answers a little bit later. But with that, I'll turn it over to Mark to go through the financial details. So Mark?

Well, thanks, Tom. And good morning, everyone. It's great to have you guys out to visit our plant yesterday and spend some time and see the things that we've been working on over the last couple of years. And it was also great to have an opportunity to meet with folks last night. We're at [indiscernible]. I hope you guys enjoyed the event. It's a wonderful place to visit. It has a lot of aircraft history. And it was just good to meet with you face-to-face. We haven't been able to do a lot of this over the last couple of years. And so really, from my standpoint, we really appreciate you guys coming out, your interest in Spirit as a company. And we think we've got a really exciting story to tell here as we move forward in our overall recovery. So I'm going to talk to financials. But my big focus is going to be around how are we diversifying, what are we going to do to delever and how are we going to go and drive margins. So as Tom talked earlier, a big focus for us is how do we go diversify. We understand where we were pretty pandemic, heavy concentration with Boeing and the 737 program. Boeing is a great customer, right? It's our #1 customer. It's our largest customer. They've got great airplane programs, and we're very, very excited to support them. As you can see, our aspirational goals here, as we move forward, both from an organic and an inorganic standpoint is how do we get to 40% Commercial, 40% Defense and 20% Aftermarket. And we've made a lot of progress even through the tough times over the last 24 months, right? But we are going to need as we move forward here to look at potential acquisitions to meet our overall growth objectives. On our revenues, as you can see and Tom talked about it previously, in 2019, $7.9 billion of revenue, that's pre-acquisition of the Belfast, Morocco and Dallas sites. 2020, the pandemic hits, MAX is grounded, revenues are $3.4 billion. We see a slight recovery in 2021, okay? $4 billion. And as we think about our growth over the next several years, one is the commercial aerospace recovery. We're poised to support that. There's really not a lot of work that we need to do to achieve that growth. Single aisle is our backbone to our backlog. Boeing and Airbus are driving higher production rates on the 737 program and on the A320. And so those volumes will be driven to Spirit, and that will drive a significant amount of revenue growth over the next several years. We know that over the next couple of years, the twin all markets are going to be -- continue to be challenged, right, with international travel. But as we think about where we're going between now and 2025, right? We feel confident about our Defense growth. Our -- the programs that we're on and achieving $1 billion of revenue in 2025. Aftermarket is on track, and Kailash will talk about some of the growth initiatives in the area of aftermarket to get to $500 million. We also have our business jets that are included in our Commercial business, with goals to achieve $500 million on that book of business by 2025. So if you look at that growth, along with the growth that we will see from Boeing and Airbus as commercial aerospace recovers, we're looking at a 20 -- more than a 20% compounded annual growth rate between now and 2025. Now obviously, there's a lot of airspace between now and then. There's a lot of things that could happen, okay? But if you look at where we're at, we're on the backside of the pandemic. We obviously see the geopolitical challenges that are going on with the situation with Russia and Ukraine, you never know. But we have a line of sight. Narrow-bodies are going to recover, and we're going to see that growth. And we're excited about that. And we believe that we're on track to meet those initiatives. So you see where the revenue growth is, right? That growth is -- does not include potential inorganic opportunities, right? So we have a strong growth profile over the next several years. And what is that going to mean? You generate more revenue, you generate more earnings. You see over the last several years, where are what we'll call is our segment margins? Simply put, it's gross margins. In 2019, if you normalize that for Kem catches and forward losses, we generated about 14.5%. We know that we had some operational challenges in 2019 as we're going up in rate on the single oil platforms. We generated 14.5% margins, right? We know what happened in 2020 and 2021. A lot of challenges there. We've worked really, really hard to adjust our costs with the lower levels of production while investing in the business to prepare, right? And Tom talked about some of the things that is going to enable us to continue to grow our margins over the next couple of years. First and foremost, it's revenue growth, absorbing your fixed costs, right? We've got to execute. And then the initiatives that Tom talked about. And Sam will talk a lot about those as it relates to the Commercial side of things, right? Aftermarket, 20-plus percent margins, that's steady. Defense, typical margins. Where our opportunity is on the Commercial side, the largest portion of our business. And those production rates, the productivity initiatives and all the cost takeout that we've done is ready for the taking, right? And that really gives us an opportunity to hit the 16.5% margins, even through -- even with a lot of inflationary pressures. I'll let Sam talk about some of those initiatives because they're exciting, and I think you guys got to see some of those in the factory yesterday. I'm going to spend a little time over the next couple of pages, just going into the segments a little more, right? At the end of the day, Sam, Duane and Kailash will talk about that. But if you look at the commercial back in 2019, right? You're looking at revenues in the area of $7 billion, 14.5% margins. We saw what happened over the last couple of years. But we're going to be looking at growth rates in excess of 20% over the next several years. And with that, we're targeting approximately 16% margins on the commercial side of the business, right? And so where is the revenue coming from? We talked about it. You guys are industry experts here, you guys follow our business, narrow-bodies, right? By 2025, we feel as though the twin aisle should start to recover -- probably not to the levels that we saw pre pandemic, but higher production rates than what we're seeing today, right? We're seeing business jet demand grow, and we're really focused on growth there. We're -- were Bombardier's largest supplier. And then we continue to look at other opportunities, next-generation eVTOLs, and Sam will talk a little bit about that. And so that's going to drive the commercial revenue. It's in front of us. It's ready for the taking, right? We've got to prepare for the rate. We've got to execute, right? We talked about the digitization, the automation projects that we have and the focus on continuing to improve our overall business. We've got the facilities, the capital tooling in place to support the production rate climbs over the next several years, right. When we look at Defense & Space, right, great business for us. We have come a long way. As Tom said in 2016, it was a very, very small part of our business, 1 program over $1 billion. We're looking at $1 billion of revenues, that's just based on our current programs that we're on today. Tom talked a little bit about the 5 areas that we're going to go focus on growing in defense, and Duane will talk about that, but we're looking at about a $1 billion business by 2025 at typical Defense margins, 12% to 14%. Aftermarket, a great part of our business, although it's smaller, it gets overlooked to a certain degree, but very, very good, strong profitability. And I will tell you there are lots of opportunities for us to grow in the area of aftermarket. As you can see in 2019, margins stable over the last 3 years, somewhere between 18% and 20%. In 2021, we were 21% margins. And we've got a line of sight to growth rates in excess of 20% between now and 2025, which will lead us to $500 million of revenues just organically. So we're expanding our global footprint, right? We're entering new markets. We're developing new repairs. We've got that nice new business that we acquired in Dallas on the radon repairs. It's -- it's a good new book of business, and we'll continue to add, right, and drive this growth at 20-plus percent margins. Free cash flow. Well, one of my favorite topic, cash. Cash is really important. And so obviously, we've had some challenges over the last 2 years as we look at our business and the declines in our overall revenues, right? We've worked hard, very hard over the last several years to adjust our costs to address our liquidity position and put us in a position to be ready for the recovery. As you can see historically, 2018, 2019, Spirit drove free cash flow of 7% to 9% as a percentage of revenues. Fundamentally, we're the same business we were pre pandemic from a cost structure standpoint. We're a better company as we move forward than we were back then. And so that gives us a lot of confidence on our ability to continue to drive 7% to 9% free cash flow margins, right? Production rates are cost initiatives, right? We'll continue to focus on delevering, and I'll talk about that in a minute, and that will help us reduce our overall interest costs and our borrowing costs. Cash and debt balances over the last several years, right? We've got good liquidity, right? We've got a good amount of cash on the books. I think we've done the right things over the last couple of years to put ourselves in a position to control our own destiny as it relates to cash. We have taken on some additional debt. But over the next couple of years, right, if you look at where we've been historically, typically, when we look at a normalized capital structure, we'll have somewhere between $500 million and $700 million of cash on the balance sheet. We'll be looking at less than 2x net debt to EBITDA. And we have a line of path when we think about our debt paydown over the -- between now and the end of 2023, taking down $1 billion. We look at our revenue growth in 2023. We look at where our EBITDA is, we have a line of sight to get there. And so we're working very hard as we get through and get more confidence that we're -- the pandemic is behind us and commercial aero is on a sustained recovery, we'll be working on a more normalized capital structure, right, which will be beneficial to us as we move forward. Debt maturities. We've had some challenges that relates to our credit rating. We were investment grade. I can tell you that, I've been at Spirit for 15 years in finance for quite a few of those years. And going back to Jeff Turner, and our first CEO, one of our big goals in the area of finance was to be investment grade. Not every company wants to be investment grade. We think it's a huge goal for us. We've been there before. We know the benefits of being investment grade, and we're focused on returning to those levels. And so as we look forward over the next couple of years, for growth, diversification and execution, you see here from a maturity stack, we have a lot of space between now and 2025. We don't have a lot of maturities. That helps us make sure that we're doing the right things to invest in the business. And so our big maturities don't come up until 2025. And we feel very, very good that we will be far down the recovery path, and we'll be an even stronger company to deal with those maturities in the future. And so really, we'll be focused on paying down debt between now and 2023, right? We're going to look at some opportunistic refinancing. Markets are a little choppy now with what's going on, but I think there's some opportunities for Spirit as we look at some of our debt and refinancing that in the current interest rate environment, and then focused as we move into 2023, getting back to a more normalized capital structure. So capital allocation, get this question a lot. First and foremost, we're going to use our cash and the cash that we generate to support our growth initiatives, to focus on innovation, focus on our business. Second component, right, is we need to deleverage the balance sheet. We need to reduce our overall debt. We want to get back to investment grade, okay? Two big, big priorities. Once we achieve, check that box, check the second box, the next focus is focusing in on inorganic growth. What are we going to do to continue to allow us to move closer to 40-40-20 from a diversification standpoint? And we'll be -- we've done now 3 acquisitions during challenging times. We've got experience in that. We've been able to incorporate those businesses fit rather seamlessly into our business and executed quite well. So we're confident that as we move forward and look at opportunities that meet our strategic and our financial goals that we can take advantage of that. And then at that point in time, we'll have a healthy balance sheet of strong business. We can look at opportunities to return capital back to our shareholders. So as we look ahead, right, we talked a lot about revenue growth. With revenue growth comes strong earnings. When you generate earnings, you generate cash. For me, getting back, generating free cash flow from my seat is a very, very important goal for us, and we're making a lot of progress, right? We need to continue to be very, very disciplined in capital allocation. We'll continue to focus on that. And as we think about 2022, right, it is -- '21 for us was a bridge year. 2022, we're not recovered yet. We're on the road to recovery, right? There's some -- still some uncertainty in our business. When is the 87 -- when is Boeing going to start delivering on the 787, we're supporting them, right? Decisions Boeing has to make ongoing higher than 31 a month or 31.5 month on 737, right? We see some of the challenges due to the Ukraine and Russia situation on raw materials. We've got inflation. We've had some challenges. We're on the backside of the pandemic, right? So as I said in our earnings call back in February, first quarter will be the slowest financial metrics or the lowest financial metrics that we have for the year. And we expect is we move through the course of the year, to move past some of the uncertainties and look at meaningful financial metric growth and improvements as we get through the rest of the year. We feel good about, as we get to the back half of the year and as we move into 2023, that some of these uncertainties will be behind us. And once that happens, what you'll see is you'll see the financial performance that you saw from Spirit in 2017 to 2018 to 2019, a company that is in the $8 billion -- $7 billion, $8 billion revenue range, a company that generates in excess of 15% margins with goals of hitting 16.5% and a company that has historically generated very, very strong free cash flow. And that's what our goals are, right? We believe we -- all the work that we've done over the last couple of years, lots of challenges that we've had from a business standpoint. We've grown closer as a company that we are going to emerge even stronger, more diversified, with lots of opportunities for growth. And I think Sam and Duane and Kailash will talk about some of those things. Now with that, we're going to take a break now. We're going to -- next door in [indiscernible], we have a technology exhibit, right? Some of our teams will be over there with some small exhibits for you guys. So take a break, relax a little bit, check up on some e-mails, make some calls. But go see the exhibits. There's some really cool things, right? We'd like to have brought more to the hotel, but I think you guys got to see some of it in the factory yesterday. So take a few minutes, look at that. And then when we come back from the break, Sam is going to talk a whole bunch about our Commercial business and all the things we're doing to grow, diversify and generate a lot of profit. Right, Sam?

Oh, yes.

Okay. Thank you. [Break]

[Audio Gap] everyone. So I'm going to talk to you this morning about the Commercial piece of Spirit's business. And as Mark showed you and Tom talked about before, we're the largest part of Spirit's business today. In 2019, we were -- as a segment, we were a little over $7 billion. Obviously, as Tom described, we then dropped to $2.7 billion in 2020 after the MAX grounding and with the COVID implications. In 2021, we're back up over $3 billion, and we represent most of the revenue today. As we move forward and we look forward to the returning of narrowbody rates, in particular, we're looking forward and very optimistic to about somewhere north of the 20% growth CAGR. When you think about what's the kind of work that we do in the Commercial segment, it's really in kind of 3 areas. You've got Airbus. We're on the A220, the A320 and the A350. That purchase of the Bombardier Aerostructures business really put us on the map in terms of being an Airbus supplier. We're doing the wings and the fuselage on the A220. In the Boeing platforms, our flagship is the 737. You got to look a lot of that, those of you that were on the tow yesterday, and we make about 70% of the content on the 737, and we also do the fully integrated 787, which I think you also saw yesterday. In the regional and business jet market, this is a growing area for us, and it really -- it grew significantly with the acquisition. We're now Bombardier's biggest structure supplier. We've got the challenger series. We have the global series as well as doing -- we do nacelles, thrust reversers, horizontal stabilizers, fuselages on really good business jet platforms, and we're seeing a lot of growth opportunity in that area. There are also other areas that we're working on. I'll cover that in a little bit more detail in a moment. So in terms of footprint, where is the Commercial work done? Well, a lot of it's done here in Wichita. You got to see a lot of it yesterday. And we also have Tulsa operations, which feeds Section 11 and also wing components as well. We have our state-of-the-art facility in Kinston, which produces the composite Section 15 sensor panels of the fuselage for the A350. And they go across the water to San Jose, where they're put together, and they've rolled across to Airbus. Over there in Europe, we have Presswick, if you think back, that was our first acquisition, and that goes on the Airbus supply chain. Our Belfast acquisition with the Bombardier aerostructures that gave us that fully integrated wing on the A220 as well as the regional and business jet work. And along with that Belfast operation, we got another low-cost operating facility with Morocco. Morocco is working on the A220 fuselage, but we see lots of opportunity and development opportunities for more work to go into Morocco. So Morocco gives us a second low-cost country manufacturing site in addition to the site that we already have with Malaysia. Malaysia already supplies significant parts to the 737 and the A320. So we've got 2 low-cost operating regions as well. Overall, we have 19 million square feet of manufacturing, a little over 10,000 employees, and that includes a significant make by organization. So when we think about demand, as we know, GDP is up to 5.9%. And the OEMs are pretty consistent in what they're saying. So between '21 and 2040, they see a demand for 40,000 aircraft, 80% of which they're saying narrow-body. So narrowbody for us is 220 -- A220, A320 and 737. When you think about the specific backlogs that are in existence today for both of the OEMs. So you see Boeing's got a little over 5,700, 83% of their backlog today is narrow-body. Airbus, on the other hand, is a little over 7,000 and 89% of their backlog is narrow-body. For Spirit, it's 85% of our backlog. And what are the indicators? Well, we think the indicators are pretty strong as we're seeing travel come back. You see the reduction there in 2020, that 99% reduction in travel, but where are we today? Domestic travel is back to 80% of the peak, and that pertains mainly to narrow-body aircraft. Twin-aisle aircraft, 52%. So international travel is only at 52% of the peak of where it was. So in terms of OEM production, we're talking about rate 31 on the 737. Airbus is talking about rate 65 on the A320 by 2023 and on the A220 aircraft getting to 814 by 2025. So what are the priorities for the commercial business for Spirit then? It really comes down to 3 areas. First is execution above all else. We've got to execute on these rate increases, these rate ramps. We've got to drive the company back to that 16.5% margin that both Tom and Mark talked about. And then it's about where are we going to grow for the future. So we'll talk about execution first. While it goes without saying safety, we've got to keep our employees safe, and we've got to have our products safe. So safety is paramount, but quality is, too. It goes without saying in our industry. But then Second, with this coming back from the times that we've been in, our customers quite rightly, and their customers have a much higher bar in terms of the quality expectations. And that means a lot of new thinking around what are the processes and technologies that we can apply to ensure that rate executes flawlessly. We spent a lot of time during the downturn getting ready for the next lot of rate increases. Frankly, we learned a lot from before when we had the NG and we had the MAX kicking in, we were in high 50s rate. We learned a lot of lessons in terms of the state of our factory, the gaps in our factory, what would it take to get to a high rate, and what things could we do, like Tom outlined a few of them, in order to set us up well for this next journey. So that Plant 2 redesign, it's really kind of like a spaghetti map when you look at it on the left-hand side. And when you look to the right-hand side, you can really see what an improved flow does for you. When you've got less moves. You've got less work in progress. You've got less opportunity for quality issues, for work being done out of station, but also you have opportunities in terms of labor hours, taking costs out. Also, if you -- when you were doing the tour yesterday today and you looked above, you probably saw the cranes up above. The fewer crane moves you can do, the more efficient that factory can be. So how do we get to that improved flow. It's about technology, it's about moving work out and it's about reorganizing and redesigning that flow. Ultimately, quality and safety improves with a reduced flow. So one of the things that you saw yesterday, those on the tow was the Northeast manufacturing facility. So this is 1 area of work that we took out of the main factory. So that Northeast manufacturing facility was originally built for the 767 fold, that Section 41 integration work. This last year, we also moved the 737 Section 41 work into that building, and this created a center of excellence. So it's about using the common tools. It's about looking at the feeder lines, it's about thinking about that whole flow of Section 41 and making that as efficient as possible. Tom talked about the expansion now of that facility for rate and not only rate, but also adding in of automation. So in that Section 41, there's about 14,000 fasteners that need to be installed. About half of those fasteners are skin and the skin fasteners, right, the drilling of the skin fasteners. So automation will bring much more accuracy, higher quality, less labor hours, less rework. So that really kind of makes that Section 41 much more efficient. Other area of work that we took out the Plant 2 main factory was part of the process called Section 11. And we have a dual strategy here. So it's a very complex piece of the build, and so we wanted to have a backstop. So we took a dual approach here. Half of the work is going into Tulsa -- half of the rate is going into Tulsa and half of the rate into one of our suppliers, called Orizon, one of our lead suppliers. This also use empty capacity in Tulsa, and we've got a ready able workforce with the right kind of skill set. And our Orizon supplier and they're going hand in hand here. So you've got your testing the process. You've got competition against each other is coming up to speed. So that's going -- that's working really well. And it's freed up very valuable floor space in Plant 2. Another area of work has been digitization. So big lessons learned from before is we need to see the problems before they're coming. We need to see real-time data and be able to act on it in real time. So that's really what digitization is. supply chain control tower is something I'm really excited about. This is something that, Terry George, if you met him, really put our energy behind. So this is about not just going out there and visiting suppliers, right, and seeing what they want you to see are taking their word for it. This is about looking into the system, into the supply chain, seeing if they've hired the people, all the material, if the jobs have started on time, where the jobs and the jobs dispatched, right? So you actually can see. So we're piloting this now in 737 on certain suppliers. This is a big opportunity for us in the future as we look about the health of the supply chain through rate. Second area, Tom mentioned Floorsight. Floorsight's also part of our management -- overall management operating system. So this is where our managers on the floor can get very quick access to work with their crews on data real time right there and then. So you may have seen that on the tour yesterday. That visual work instruction, so as well as updating and making the work instructions available, and Kevin Matthews can talk more about this, it was an opportunity to improve the instructions. But also, if you think about it, as we think about this next generation of workers that we're trying to attract into aerospace. They're not thinking blueprints. They're not thinking about walking 300 yards to a computer to go into a database to look at a drawing that kind of looks alien to them. They're looking for this kind of technology where it's visually very easy to see and you can pull it up straight away, and it looks like what I'm looking at, right? So visual work instructions is a big deal on the factory floor. Then Opticrew, so if you're somebody like Kristin Robert, who runs 737 program, she loves nothing better to walk around and see real-time allocation of crews. So before, the old method is, okay, what should champion time to get something done, but this is kind of a reactive look. What Opticrew does is you're actually watching where every piece of work is. So you know where the crews are. So in real time, you can go, okay, this is done. Let's move this piece of the crew over here. So that's going to -- we'll see how in rate this helps us to get massive value and faster champion time that Tom's always pushing us on. But Opticrew is a significant advancement. You talk about automization and robotics. So that A320 spoiler line. So Sean, in our technology area, in the break there, was really showing it. This is a fantastic opportunity. So this is going from a in autoclave, very complex multi-care type of process. You'll have to talk to Sean about the technical details, but it's going to an out of autoclave with less parts, it's about maintaining the WIP, but taking about 30% of the cost out. This is high rate composite production. So right now, this line can produce over 650 units a month. A shipset takes about 10 units, 10 spoilers. So that's a great example. You saw the automated floor beam line, the 5 fully automated stations, the 5 semi-automated stations. This is a phenomenal area for us to look at. If you think about that flow beam assembly, where in a ship set -- and flow beam, you have 45 to 50 floor beams of about 300 different configurations, and you're able to put that down the line, improve tack time, you improve your WIP, you improve safety, ergonomics, all of those things, and you take hours out. So you probably heard some of the savings that we're expecting there. And then the question on that is, where else can it be applied? This is a scalable solution. Today, it could go up to 70 aircraft per month on a 3 shift. But where else could it go? It's a scalable system. And then you saw our global digital logistics center, our -- own Amazon for our delivery. If you think about it in the past, so the Wichita campus is between, I don't know, 11.5 million, 12 million square feet. And all of those parts were all over the campus. So they've all been brought into 1 location. There's 28 levels, over 9 acres, and so they're all in 1 place. So that's one thing. The other thing is all the parts are then tracked. You can see where everyone is. You can hit them much more efficiently. You can watch the ordering and the polls from production. So one of the things that often happens in operations because the logistics were slow is let me order an extra kit, right? So you've got more WIP in the system. This takes all of that out of there. There's guaranteed hour delivery. So on a daily basis, like Tom mentioned, we're handling about 60,000 pieces, so 20,000 that make up 20,000 parts. There are about 800 kits of 1 type that go out to the floor. There are 750 form kitted arrangements that go out as well on a daily basis. So this is going to really, as we get up into rate, this is going to really streamline the delivery of our parts to our operations. Supply chain. So looking externally and then that was a lot about internal. So our supply chain, we buy about 80,000 part numbers. across 900 suppliers. And as Tom said, in the downturn, it was really important to provide systems to keep that supply base healthy. And that was done in a number of ways. It was extending contracts. It was inventory, it was a number of things, payment terms. But I think that set us up well for us, we're coming back now for rate increases, keeping the supply chain healthy as possible is paramount. One of the other things that we've done as well as supply chain control tower and bringing -- introducing technology is, we've really beefed up the team that just looks at supply chain readiness. And they look at not only through the system, they're out there visiting. They're doing lots of assessments, but they're also doing our 3 lines of defense. So getting ahead seeing indicators of what's happening, what would we pre-add, what would be our plan B. Where are our multiple sources of cover or even to move work. We've also assembled a very experienced operational team that will back up this readiness team that we can deploy on the site by region. So one of our secret advantages -- it's not really secret because it's, like Tom said, the largest aerospace fabrication unit in the world, is really our capabilities on this front. It gives us an advantage from a number of angles. Number one, today, we actually today are fabricating 41,000 parts. And so that's a little bit different than what Tom said, but what that tells you is we can bring parts in and out. So if one of the suppliers is in trouble, we can bring it in and we can blue streak or we can produce. We can do cover, and we can push it back out. So that's why that varies from time to time. One of the things that we did, we've put the fabrication team together with the supply chain team to make a make buy team. So what this does for you is it gives you untold benefits, not only from a cover and a safety standpoint to protect rate, it also gives you a competitive advantage, which I'll talk to you about in a little while here. So driving the company to the 16.5% margin, what are we doing around that? Well, it's a lot around the technologies and implementing those technologies. We'll talk a little bit more about that. But this make, buy and wear, so do we do it internally? Do we do it externally? What region in the world do we do it? And what total landed cost, all of the clean sheeting, the wave process, the cover, how does all of that work? The fabrication strategy, the ability to bring in and pivot and push it back out and using that [ 19 million ] square feet and those assets in the best way. So Lean Manufacturing. In a manufacturing environment, you'll never get away from lean. We've taken a renewed energy. So we've done all of the work that we've done so far while rate was down, but we're renewing our efforts on the lean side of things. Industry 4.0. So another industry to -- another technology to mention. You probably saw Spifi, those of you that went on the tar to the Fuselage Center of Excellence. So Spifi is Spirit's fastener inspection system, and it automatically inspects and correlates with the engineering, and it provides trend data. So this is a real great piece of technology. And if you were listening to the video last night, the dinnerware, Connie said, she's really proud of her riveting and she said, he inspector run his hand across, and he's -- that's how it was done. So basically, inspection, you kind of run your nail across and then you go, that feels a bit high and you go look at the engineering. So this takes all of that out of that. This is much more accurate. This is much more deterministic. And then our R&D team. Remember what I said at the beginning about quality is up the game, skin quality especially. The team is looking at the application of this technology when you think about dents and scratches. So why you think those are the kind of minor issues and generally within engineering, there are issues for our customers, and this is a technology that we can use to look at that. And then that make by advantage. When you've got that supply chain, you've got a strong, robust supply chain and you've got this wave process. So you -- so they know how it works now. And you might say, well, do you think they might sit down on you if they lose the work in the way, they know other waves coming. And actually, through every wave, the work improves, the drawings improve. So they get into the flow and they get used to the wave process. They also know there's a threat of the large fabrication business where we can pull the work in or we can take parts of the process and make it more cost effective. Okay. And then to kind of finish with the third area that we need to focus on is going to the future. So that's about next-gen aircraft and where Spirit is going to play and how spirit going to play in that. What's our answer going to be to sustainability, a big deal with our OEM customers, and then this emerging business jet growth market as well as adjacent opportunities. So I'll leave this for Kevin to talk about what we focus on 7 distinctive capabilities all across the range there, you can see. It's not just about metal and composite structures, it's also about accelerating learning curves. So it's a big piece of the work that our R&D team help us with. We've made some significant investments in our research centers. And in fact, in Scotland, we opened last year a part funded with Scottish Enterprise, a collaboration center that works on robotics, automization, 4.0, they're impressed work. Our business jet business. So we -- some yet to have the announced programs in the business jet arena. It's growing nicely. There's a lot of opportunities that are coming down the pipeline there. We're optimistic that we can get to $500 million in revenue on the business jets by 2023. So it starts to become a significant business in of itself. And then there's a new market. Again, we've got some yet-to-be-announced programs on vertical takeoff and landing and eVTOL and what do Spirit bring to that. So we've got a lot of know-how, as you guys know, both from the metallic and composite, all the work that we're doing in thermoplastics, but also technology consulting services around industrialization, those types of things and access to our supply chain. So the vertical take-off and landing is definitely an opportunity area as well as the sustainable aircraft. So to summarize then, we're working on 3 things. Above all, its execution and getting back to rate, safety -- with safety and quality first in mind. And that's internal and external. That's about our supply chain as well as our internal work. At the same time, we've got to reap the benefit of all of these great changes that we've made and look at continuing to implement [indiscernible] to improve -- to continually improve and to use our assets in the best way possible. And then in terms of going for the future, it's really these 4 areas. It's about what role Spirit going to play in the future on the next-gen aircraft. It's about sustainability solutions. We're working on those from R&D. Business jet growth and capitalizing on that and then looking at these adjacent opportunities. There's lots of pieces of work that fits Spirit profile. It doesn't mean to say we do them all, it has to be accretive from -- to the position that we're in, but we're looking at those as well. Okay. Thank you. And so with that, I'm going to pass over to my colleague, Duane Hawkins.

Okay. Thank you very much, Sam. So I get to talk to you about defense. That's in space. Those are my 2 favorite topics in the world, and really talk to you a little bit about some of the exciting things that we're doing. And even though we can't talk to you about everything that we're doing, at least we can give you a flavor for the progress we've made, and we anticipate making going forward. So this is where we fit on the chart. We're right above Sam. Eventually, we'll be the same size as Sam, right? And -- but not quite yet. And so that's a big challenge for us because Sam is going to continue to grow, and of course, we have to continue to grow. But we've got 5 major segments here that I'm going to talk to you about. This is our revenue for the last few years, and you can see, we've got a pretty solid segment here with some very good margins. And then what we decided to do a little while ago is to say, Hey, let's get a little bit more strategic about how we're winning things. Obviously, we've been very opportunistic, and we'll continue to be opportunistic. But how do we really focus our energies in those areas where we think we can provide the best value to our customers and have the most leverage and move more quickly. So we went into these 5 areas, and I'll go ahead and explain each one of them just a little bit more in case you might have some questions as to what we're talking about. But we really felt like these areas are the areas that really match our capabilities up with what our customers -- defense customers need. And I think that's playing out very nicely. So I think we picked the right ones. We reserve the right to modify them a little bit as conditions change in the world, but I think, overall, these are the areas where we can provide the most value. So let me go talk about the first one here, next-generation aircraft. Obviously, aircraft makes the most sense. That's what we do. That's what we've done on the commercial side. And if you -- just the P8, the KC-46 work that we do, obviously, that makes a sense. But if you really look at all the other types of things that fly for the Air Force and the Navy and the Army and the Marines, that makes total sense for us to stay in that business. So what we've done is, we've actually grown this business, and this is where we're probably the best penetrated of all those 5 areas. To the point where we feel like we're pretty fully penetrated in this area in the sense that all these programs that we've added over the last 2 years in particular are mostly in this area. And we're very excited about it because we're on -- we're at the very beginning. I can't mention the programs, but if you think of a new program out there in this space, we are on it, and we're not just building structures. Obviously, that was an entry point for us, but we're actually designing them from the beginning. We're designing the structures, and we're also designing all the components that go inside and doing the sub assembly, very similar to what we're doing on 787 Section 41. So this just isn't structures, this is full up very complex, integrated subassemblies that go into next-generation aircraft. So we're very excited about that, and I think our customer sees the value proposition there. Part of that is that we have -- we design using digital tools, digital thread because we actually build a lot of things. We can take that digital thread from design all the way through the end of the product cycle and -- which advances our strategy when you think about it nicely. And so this is something that has really gained a lot of traction with some of the major primes here because a lot of them have -- over the years, have gotten out of the manufacturing business, have gotten out of the fabrication business, and they need someone to come in and help make the case that they can design for a production, they can design for automation, they can design for scalability. And that's exactly how we operate here at Spirit. So these programs here, you can see they're very, very exciting programs. We're obviously on the B-21, the V-280. We're very excited to be on that team. The other thing we're able to offer our customers, as Tom mentioned, is that we're able to take some of the twin-aisle capacity, both facility and machine lines, and offer that to our defense customers to manufacture their products even in the design phase. And so that's been very attractive to them because obviously, we cut a huge amount of time out in the cycle because we already have the facility, we already have the capital. We don't have to go build it and go buy it and install it. It's already there. And so that's been a huge attraction to our customers. They like that. There's nobody else that can offer that kind of capability in the industry right now, and so we've been leveraging that a lot. So you can see how much -- if you look at the green, one of our buildings there and the CFF building. The green is where we're at, you can see where we're going with the blue in the future. And we're utilizing this -- one important thing is, we're utilizing these assets now for really important work and allowing us to leverage and get ahead of our competitors in these spaces. So next-generation aircraft, that's the first one. Next generation effects. So if you know my background, you know I'm a missile guy for most of my career. So I like these things. The -- when we bought FMI, we were able to say, hey, we're now in this business because all the high-temperature applications where it's the very tip of a missile or where the exhaust comes out of the rocket motors, which are very, very hot applications -- high-temperature applications, FMI builds these products for virtually all missiles, both cruise-type missiles and tactical missiles. So you can see down there, we're in on almost all of the important programs there, and a lot of this has to do with our FMI acquisition. So we see a lot of opportunity there in that space, and I think our customers are starting to see that too. Hypersonics. So Again, FMI has put us on the map in hypersonics. It was somewhat aspirational before that. We got a lot of interest because of our scalability, our ability to get to production fast, and as most of you know, that's a real issue right now is, how do we build these things fast. So once they get designed and proven, we need to get a lot of them out there. And of course, I think we're being seen as that solution because of our commercial capability and our ability to ramp up in production quickly. So this is just an example here. So we have a contract to do the thermal protection system. And if you look at that product on the right, this is an example of us proving a larger scalability for 3D carbon product. Most of the stuff that FMI deals now is a little bit smaller. This would actually allow you to build larger acreage product. They -- we are Wichita guys who, obviously, know automation really, really well, worked with our folks up in Maine and design this fully automated system that builds larger 3D [indiscernible] carbon product much quicker, much faster and much more efficiently. And this has gained a lot of attention here. And so obviously, if we wanted to scale up and build at much higher rates than what this would allow us to do is relatively easy to go that, and we know how to do all that. So we feel like we have a solution for the hypersonic issue coming up, and I think most of our customers feel the same way about that. Okay. Unmanned Aircraft System. Again, this wasn't something that we -- we're really -- it was a little bit aspirational for us. We felt like it's a good space for us, but until Bombardier acquisition happened, it was still a little bit aspirational. Well, it's not aspirational anymore. We're actually building this thing, the whole thing, the entire thing. This thing will fly away from our facility over in the U.K., and the work that they're doing is very, very, very impressive. And some of us on the ELT are actually cleared on the program, and it's very, very excited to see what we're doing here. So we also feel like this is a great opportunity for us here in the United States. And so even if it's not selling the [indiscernible], that's a possibility over here, but clearly, our design capability and our ability to manufacture is now out there. And we think this puts us in a pretty competitive spot. So that's another one of our areas where we're very excited about. And then space. Again, space wasn't even on our radar screen. I think it was a few months ago Tom and I decided to change the name to Defense & Space, and it's all because -- primarily because of FMI because FMI does some really exciting things in space, in the space, and we've met with NASA quite a few times. That's their biggest customer. But not only NASA, but other folks that are in the space business, private companies that are in the space business, and we're gaining a lot of traction in that area, and we're hoping to have some pretty exciting things to announce here shortly about what we're doing in the space. So you can see, they did the heat shield on the perseverance program going through the atmosphere in March. We were all just kind of waiting there in my office, watching it, hoping everything would go well, and it did, thankfully. And then we're -- also in a few years, we're going to bring all those samples back that we got from ours, bring them back here to the United States, but you have to actually bring them back and get through the atmosphere and travel the long journey. And so we're designing thermal protection system for the vehicle -- the return vehicle that will show up in a few years and bring those things safely back to earth so we can do more further analysis on it and learn more about Mars. So we're also part of the asteroid bennu, where we landed on the asteroid for a few seconds and got some samples out of that. What I understand, they've got some pretty exciting things on that. And then also future missions like Saturn moon, Titan, and the Venus and other programs like that, we're involved with all of those programs with thermal protection systems because our material is the best solution for that. So those are the 5 areas. So you can see, if you look at what are we working on, what are we shaping, what are we pursuing and what are we waiting awards on, you can see next-generation aircraft, like I said, is our biggest area there. We've made probably the biggest improvement there, but we have $6 billion of programs of record right now with the pipeline that we have right now, and so we're very excited about that. We obviously want that to grow and continue to be a larger room. We have more capability and capacity to do that. So we're focusing on these areas to grow that pipeline. And so we feel very confident about achieving $1 billion in 2025. I'm not too worried about that. I think, like Sam said in her chart, it's really about execution. We just need to go execute what we have, and we'll be fine. But obviously, we're focused on the 40%, right, which for us is obviously more growth and doing more with the defense industry. And we have a lot of great programs that we're on, but we've got a few more that we want to get on, and we're working on those right now. So anyway, the 2025, we're not worried about. The other thing, in the last 2 years, we were actually doing nothing with Lockheed Martin [indiscernible]. And before we have this event, I couldn't really -- we couldn't even really talk about it. Lockheed wouldn't even let us talk about it, but then they decided to do an open house, and this was back last summer. And to just show what they're doing in digital engineering and determine an assembly in designing for automation and all of that to just show the world that they get it and they know they got to improve in that area. So they opened it up primarily to the press, to the media for the first time in 20 years, and they only invited one partner out there, and that was us. Spirit was the only one they invited out. And so I went out there and was busy talking to the press all day for 5 hours straight, and it was a great experience of primarily means Jeff Vavian who runs the [indiscernible] for Lockheed. And this is a great example, I think, of us gaining traction on what our strengths really are and showing the largest defense contractor in the world that we can really contribute and help shore up those areas where maybe they some help. And so this gained a huge amount of traction. The products that we were making were all on display there. And I think we see this as a -- it's kind of a monumental event here for us to be able to participate. And I'm really glad they open that up and let the rest of the community see what we're doing. Okay. But we're still doing some other stuff. So we've converted an older building, doesn't the goal now because we've completely redone it and worked with NIAR, which is part of Wichita State, and they help fund a lot of this, too. And we now have a National Defense Prototype Center that can do all things from design, manufacturing, assembly, whatever on classified products because all the new products are on practically are classified, and it will probably be that way for a long time is, we can do those here in this facility. So this is the first of this type of thing that clearly any Tier 1 company has ever done. Nobody has this that's in our space. None of our competitors have anything like this. Particularly, with an IR part that we're sharing, where they do a lot of the testing for us, all the material evaluation for us. It's a joint effort here, but our customers have really, really appreciated this, and we're just starting to gain traction. So one of our big development programs that we're working on is being run out of here, all the way from design all the way into our initial production in this classified space. And then when that gets done, we'll move that to another part of our facilities, and we'll have another one. But we can do more than one in this facility, we can do 2 or 3 in this facility, and we're very excited about this. We think this enables future work also. Okay. The other thing we're doing is, we're taking some existing facilities. Again, part of the strategy is to fill up some available capacity in our factory. And we've converted this to a classified fabrication center, and we've taken and put in their existing equipment. We didn't have to go out and buy new equipment, this is existing equipment and put it in an existing facility. And this will be, as far as we know, no one's been able to challenge us on this yet. This will be the largest classified fabrication center in the country. And so this will be able to do classified fabrication, machining in particular, of some exotic materials anywhere in the U.S. And so you can see, we're -- these are actually real-time pictures, so you can see we're moving along in there and in a little while, that facility will be open, and we'll be -- we've already got lots of things lined up to go in there from our prime customers. So that's just one more way of us adding value to our customers and getting involved right upfront at the beginning of some of these really exciting programs that are coming out in the future. So I think, to summarize, we're a $585 million business right now. We are targeting $1 billion. We're committed to $1 billion. We'll be at $1 billion in 2025. I think the most significant thing is that we -- at one time, not too long ago, we only had 4 programs over $1 million. Now we have over 24, and that's growing. That's important because a lot of -- that means that there's a lot of design work and also future fabrication work that we're in process. There's a lot of programs we are involved with. Obviously, there is not just 24, there's a bunch of other ones, too, that we're working on. And so we're getting involved in everything we possibly think we can have value and our customers feel like we can add value to. So we're really excited about the things we're working on. And then we've got our strategies in place. We're going to focus on these 5 areas, and we think, in the future, after that, we'll be on our path to get to 40%. That's our objective. So that's what I have. I think I'm going to introduce a video and then for Aftermarket, and then Kailash Krishnaswamy -- I practiced that, is going to follow up and talk to you about Aftermarket.

Thank you, Duane. I usually say that my last name is too long, so thank you for trying. It's Kailash Krishnaswamy. I'm happy to talk to you about Spirit Aftermarket today. Aftermarket means different businesses to different companies, and so hopefully, today, you'll get a sense for what exactly Spirit Aftermarket means because we've not really talked about it publicly in a long time. So with regards to the strategy pyramid, that's where we fit. I'm going to talk to you about repairs, customers, geographies, some of the key elements and I'll also tell you a little bit about how we differentiate ourselves versus our peers, and that will help with giving you a flavor of how we are different. Notionally, the commercial aerospace business is, let's say, about $200 billion. Now these days, it depends on the year that you look at it, but OEM is about 60% and Aftermarket is about 40%. There are certain fundamental attractive elements of aftermarket. Usually, it's a lot longer. It's a long tail, we've past the OEM. And there's a lot more customers, and usually, they're better margins. And so it is a space that most aerospace and defense companies, at least on the commercial side, do have a role in. And so it was time for us to tell you what we do in Aftermarket. The performance in the last 3 years, we've grown steadily, about 15% CAGR, I would say, but it's been on the back of a few acquisitions. Tom already talked to you about these. In 2019, it was primarily Wichita. We have a repair center here in Wichita that did a lot of 37 and 777 nacelles and flight control surfaces. In 2020, we acquired the Belfast business of Bombardier, along with that came a Dallas operations. And so we added capability on A330, 757, A320, and so there was a bit of an organic -- an inorganic growth in 2020. However, the results of the year where we saw the massive impact of COVID on all of airspace and defense. And then in 2021, we added Applied Aerodynamic. We added the JV with EGAT. And so we added some more capability. And so on the back of all of that, we've grown about 15% cumulative. The other part of this chart that I like to draw your attention to is, today is about our repairs business because that's really where we have a lot more ability to be agile and respond to the market. Our spares business is typically to the OEMs, so Boeing, Airbus, Rolls-Royce and so on. Now we do have -- so the Spirit's business is primarily based on orders from the OEMs, and of course, we fulfill. There are a couple of platforms where we can go directly to the market, but today's focus is going to be on repairs. So what exactly are repairs? So a couple of pictures here. This is a narrow body in the sales sleeve. On the top left is a unit that shows up in a shop typically. In this case, it's a damaged sleeve that happened because a slack good extended at a time when the thrust reverse were still open or sometimes you could have ground handling equipment just run into the cells. So yes, we build product that is the right quality, the first time that don't break. However, others break it, and so we really do have to fix it, which we are thankful for. Now the bottom picture is again something similar. The bottom one is ground handling equipment. They're just trucks that are running to nacelles. They're thankfully so low to the ground, and we fix those. So these are the kinds of complex repairs that we do. And there's enormous value that we would deliver to our customers because the alternative would be to replace the entire unit. On wide bodies, for example, this is a fixed structure. This is a situation where a boroscope that was inserted into nacelle to do an inspection of the engine was left unplugged. And so we had heat escapes and essentially, that blew hole through the fixed structure. So in situations like this, you can see from the bottom left image, it's fairly damaged, and it's about 1, 1.5 foot big in size. And so in situations like this, it's hard to repair, but what we can do is replace just a part of the fixed structure. So again, that's not something that can be easily done. You need specific tooling, you need access to parts and so you need engineering repair approvals. And so I'll tell you a little bit about the fabric that goes behind us doing these kinds of repairs. More pictures. You can see on the bottom left, for example, is an inlet, and that's you see the size of the inlet and the damage and the lip skin, typically happens when you have a large bird that flies into the engine or the plane flies into a bird. You could also get this from debris on the runway if you're landing in airports that don't necessarily have the right kind of cleaning, for example. On the bottom right, you also see Redoms. We do a lot of Redom repairs. These typically, again, are bird -- are lightning strike, bird strike related repairs. So these are all the kinds of products that come into our shop. The more damaged these are, the more economics we generate and we also deliver to our customer. So in terms of expansion, you've seen this chart before, but we started with Wichita. We added the Belfast business, which brought us the Dallas operations of -- in Aftermarket as well as Morocco. And then we cross pollinated our capabilities from Wichita to Belfast, from Belfast to Taiwan. Taiwan, which is the EGAT facility, they had an extensive repair library. They're very agile with delivering value to the customer. They are, of course, captive with EVA Air. They're all part of the Evergreen family. So they have a diverse fleet, and they need to deliver repairs to their own fleet. And so they've been very entrepreneurial in developing repairs for their fleet. So we are transferring that knowledge down to Dallas. And then, of course, we continue this cross-pollination across many regions. Now one of the key things that I will say in Aftermarket in order to be able to succeed is, we kind of need to work with the customers. The customers are really focused on turnaround times. They're really focused on delivering quality and value at those -- at the turnaround times. And so Wichita and Belfast are primarily production houses, and they had an Aftermarket business. However, Taiwan and Dallas are more aftermarket businesses, and they're solely aftermarket businesses. So as we expand when we look at Middle East or when we look at China or Central America, our focus is to be work with partners that are more Aftermarket focused as opposed to being production focused. So getting that culture into the larger Spirit Aftermarket business, where you have a diverse group of people, diverse regions, all thinking entrepreneurially about delivering value to the customer quickly and with the right quality is very critical for us to gain share in this market. And so that's what we are focused on, and that's how we intend to grow over the next 3 to 5 years. So this growth in the last 3 years essentially brought us a lot of capability. So in 2019, on this chart, what I'm showing you are the various platforms in the vertical axis and then the various components that we could either repair or replace in the horizontal axis. So in 2019, it was pretty much focused on the Boeing platforms and primarily, inlet fan cowl and TRS. But then in 2021, you see that our capabilities have grown across and down. So we can address a lot more platforms. We can address a lot more components. And so going forward, one can expect discharge to get more populated. So for example, actuation systems, exhaust nozzles, we do that on very specific platforms. Landing gear, we do that on very specific platforms. One could ask, what do you -- are you thinking about APUs? Are you thinking about hydraulics? So those are all opportunities that exist out there that we can go pursue either organically or inorganically and essentially, populate this chart. So that's kind of the -- that's the way we're thinking about growth for -- in Aftermarket. In terms of competitive advantage, when you think about a repair, you really need engineering and you need parts. And then you need the mechanics that will make the magic work and then you deliver it to your customer. When you think about parts, and Sam touched on this, we globally source about 80,000-plus parts. This is a view that gives you geographical spread. This is important, especially when you have global customers. You want to serve them locally. No customer wants their systems shipped all the way from Middle East to Wichita, except if it's an exceptional situation or you don't want customers from the south of South America getting unit shipped over to Belfast. I mean that's just not the way customers would like to work. So we need to be able to serve them in their own regions, which means we need access to parts and repairs in their own regions. And so our ability to work with 900-plus suppliers and all these parts across all the platforms that we are on, gives us a competitive leg up. This has not been -- this is not something that we have actively looked at, but it's just waiting for us to unlock and deliver value to our customers. Same thing with engineering. The top half of the page here shows you all the platforms -- the dark gray shows you all the platforms that we built, we produce. In many cases, we engineer. So that means we have -- and we have about 1,000 engineers between Belfast and Wichita and Morocco and Subang in Malaysia. We -- and these engineers have all the knowledge necessary for us to deliver design and deliver repairs to our customers. So that's again, another element that we need to unlock. On the bottom table, I'll show you all the repairs that our people have designed in the last 10 years. This is about 2,500 repairs, and there's a lot more that we actively need to develop. It's a portfolio that we manage. So between parts that we have global access to and repairs that we can develop, there is a lot of value that we can deliver to our customers. So using all of that, the DNA that I just talked to you about, we are looking at some very specific strategic initiatives. Now we always reserve the right to get smarter and always reserve the rights to evolve these strategic initiatives as markets evolve, but for now, one of the key ideas is, what is about the Spirit Inside concept. So the reason why EGAT has turned out to be successful for us and the JV with EGAT is going to be successful for us is because they are right at the heavy maintenance facility of Evergreen, of EVA Air. So that would be a recipe that you can repeat over and over again with low capital intensity and with several other strategic partners. So that's one area that we are going to -- we are actively looking into and actively deploying resources to make announcements and to start getting our capabilities into various other regions. We will, of course, continue to develop repair solutions. If you look hard at the capabilities page that I showed you, yes, there are gaps on platforms, and we need to start getting aggressive about developing repairs for some of those platforms. And so that's something that we actively do by, like I told you, managing a portfolio for developing repairs. New markets. None of -- most of our revenue, 90, 95-plus percent of our revenue comes from commercial customers. We are not touching the -- well, we are only minimally touching the sustainment business, and which is just about as large as the commercial Aftermarket. So that's something that we will actively start looking into, and we'll figure out the appropriate entry point to get into the military Aftermarket business. Passenger freighter conversions, it started to become a very hot and interesting area just in the last 2 years. So it is -- and most of you know, NIAR works across from our production facility in Wichita, have partnered with the Kansas Smart Center, and they have -- they're working on an STC on the 777. There are a couple of other players that are also working on the STCs for 777s. And so this is starting to get a lot of attention both from the commercial world as well as from the production world. And so it's something that we will look into and assess as the market evolves. We will -- we need to position to win for win on the next-gen platforms, the growth platforms are all the MAX, the NEO, the 787, the A350, the 777X. And so we will be actively looking to see how we can play in some of those platforms where we don't have a production position. And of course, M&A. We have a strategy. We have a growth plan. Once assets come on, come to the market that will fit are aligned with our growth plans, we will be taking a look at them. So with that, we feel pretty confident that we can get to $0.5 billion in the next 3 years. That's going to be about a 20% CAGR from now. It's going to be a mix of spares and repairs, but we are making the right kind of investments in the right resources to be able to achieve our target. So with that, I will like to invite Kevin, our Chief Technology Officer, to come and talk about some of the cool technologies that our team works on.

I'm really excited to be here today to talk to you about all the great things we're doing from a research and technology perspective and also discuss the cultural journey we've been on for quality. First of all, I wanted to thank Tom and my peers for really doing a fantastic job of showing off the strategies and where we're going with the business. And as I was sitting in the audience thinking about their presentations, you saw a lot of technology being deployed in the strategies. And so I see my job, and I'm inspired -- my team is inspired to actually be the engineering research technology and the manufacturing know-how to fuel all of those strategies. So my customers vary. They're internal. They're external, and they're also our external customers as well have customers. So we're feeding all of that through this group. And I'm really inspired today to talk a little bit more about what we're doing there. So we'll start off with a little discussion about research and technology. And again, you're probably going to see a little bit of duplicative slides in the sense of the pictures, but there's a reason for that. It's very important on what we're doing from a research and technology perspective, feed the specific strategies. So we'll talk about that. We'll talk about what we're investing from a people and knowledge perspective. And then I'll get into the 7 distinctive capabilities. Sam showed you a chart, and I'll get into the very specific details of those and go through that in some specificity. We're going to talk about quality. We're going to talk about the journey that we've been on and how important that is to the business. Safety and quality are the 2 enabling elements that we focus on first and foremost, and I'll talk to you a little bit about what we put into action and some technology advancements. I wanted to start with what I think is very, very important to where we are across an aviation, defense and space, industry. We're seeing massive trends that we've never seen before in terms of enabling different types of flight, different types of capabilities. So this is just an eclectic collection of different types of vehicles that are coming into play, and we're seeing this business move at paces that we've never seen it before. Some of it's driven by the sustainability requirements, and we're going to see a lot more of that happen. And frankly, I can assure you, in the last couple of years, the sustainability piece has really moved a lot of people forward on technologies that they think they need aren't enabling to be there in the future. So Duane talked you about hypersonics. I'll talk to you a little bit about the specifics, but we are the company that's enabling high-temperature flight, and I'll show you some of those details. We're very focused on efficient aircraft, and I refer to that as topology optimization, how can we actually make the aircraft more efficient. It's important to have zero carbon capability coming out the tail pipe, but also in order to enable something like hydrogen flight in the future, we have to have airframes that are super efficient from a fuel consumption point of view, and so Spirit is very well positioned to be able to do that. And then we'll talk a little bit about some of the emerging technologies that are not so emergent anymore, but eVTOL, how we play in that market space as we go forward. So we've been investing in our future. That starts with really our people. So by the end of this year, we'll have an increase of about 7% in engineering capacity. During the pandemic, we really didn't go down in engineering size much at all. We had plenty of projects to work on. The defense side was actually increasing and growing. So we moved a lot of our engineers over there. So this isn't really a recovery in my eyes, this is an expansion from where we've always historically been. We've seen and we've grown our research and technology spending pretty significantly, and we will continue to do that both from an internal perspective and using external funds to help augment where we go there. Our technical fellows, these are the folks in our business that really drive the significant amount of innovation. They lead our business in ideas. They're out, talking at various industry forums kind of putting all that technology together and giving us the path forward, and we've seen an increase in the number of technical fellows we have on staff. And then both Duane and Sam talked about these research facilities. These are the incubators. These are the areas that my team can go into and have space to actually maturate the technology to the point where we can use it internally and more importantly, that our customers see value in. So the Aerospace Innovation Center is about 100,000 square feet facility and Duane talked about the National Defense prototype center, about 106,000 square feet. So within this past year, we've added 200,000 square feet of aerial where the team can go in and actually work on large-scale projects and take those technologies and prepare them for sale. From an intellectual property perspective, we've been very busy. This -- actually, this chart is from when Spirit was conceived in 2005. If you do the math, we're basically putting forth an invention 1 per week. That's pretty amazing for a business of our size. That's what that equates to, so that's 874 inventions. Our team is inventing significantly, and every day, they're doing that. We're being granted patent rights to that, and we've got future ones pending, but this is that fundamental fuel that we use to actually position ourselves and be ready for the upcoming markets. I'm going to talk about -- and I'm just going to tee up the 7 distinctive capabilities, and then we're going to dive a little bit deeper into each of these. I won't be able to do it justice in the amount of time I have today, we could probably spend an entire day talking about these 7 different areas. There's so much going on here, but we'll do the best I can today, but it really starts with performance architectures. We are heavily focused on what do we need to do to actually be on the next-generation aircraft. We're enabling those capabilities today with the foresight, knowing where that market space is going. This notion of topology optimization and what that really is, is a fancy word for, we are the folks in the industry that are most capable of optimizing performance architectures for weight, for cost and industrialization. You heard my peers talk a lot about that today. I don't think there's anybody better that does all of that harmoniously together and can provide value to our customers in unique ways. We're very skilled at it, and it served us very well. And I'll talk a little bit of how that dovetails in from an eVTOL market because it's actually -- it's a little bit evident when we get there. Material optimizations. No business in the aviation space would be complete without having detailed knowledge of how to transform advanced materials into engineering design solutions and actually have the allowables and all of the techniques that we need to actually certify that aircraft. We're very good at that. We also have been spending a lot of time on ceramic matrix composites, and again, all of these will be fleshed out a little bit more in the upcoming slides. And then advancing the areas of thermal plastics and pie joins and how we actually bring different materials together. Product development tools. It's one thing to say that you have a digital design tool like CATIA or NX. It's another to actually have the capability to develop and actually implement rapid tools that take knowledge from our engineers and put that into an actual computerized version and use that to our advantage so that we can scale quickly and we can develop solutions much faster. So we have these knowledge applications that sit on top of the standard tools, and we've been developing those for many, many years, and we're really good at that as well. And we actually can deploy that to upcoming programs to go fast. Lean metallic structures. We don't want to lose sight of what our heritage is. Our heritage is a traditional metallic fuselage and wing business. And I'm going to talk in a second about where we sit in the composite space, but we've been very focused on growing and advancing our lean metallic structures. We've always been good in high-temperature materials like titanium. We are accelerating and have been working on for the past 3 years. We've staked out a position in nickel-based alloy fabrication techniques that nobody else has as well. I already mentioned about composites. If you don't know this, we are the world's largest consumer and producer of carbon fiber materials anywhere on the face of the earth. Spirit does more than anybody else, and we've used that position to actually continue to evolve and grow. We haven't rested on the fact that we are the best. We are actually inspired to make sure that we bring the next generation of capabilities to our customers and stay ahead of our competitors. Competitive tooling. It goes without saying, for those of you that are familiar with the composite business, it can be very prohibitive cost wise from a tooling perspective. So we've been spending a significant amount of time over the many years as well, optimizing and producing tooling solutions that are affordable and mechanized for high volume. And then finally, again, you heard this a little bit today, but accelerating our learning curves, the digital thread. You're going to see a term that I've actually been using a lot lately. I call it the digital trinity. It's really digital design, digital thread and digital twin. You have to be doing all 3. It isn't good enough to say, I have a digital threat capability. This trinity notion or Boeing uses the word metaverse, but we have really pioneered. And I would say, by far, we are leading the way when it comes to actually digitizing the manufacturing processes, and people are actually coming to us to look to see what we're doing. So let me start off. Each of these, we're going to dive in a little bit. Let me start off with really these performance architectures. So again, from a military architecture perspective, we see these very unique capabilities and these needs. Duane talked about our procurement, our purchase of the FMI business. Frankly, FMI is by far the #1 provider and most capable business of providing high-temperature materials. So now by definition, Spirit -- and when we went into the deal, we knew that there would be a synergy here. We actually have this position in the market space for future flight, and everything that we -- in the future that we see will be going faster and further. And to enable that, you have to have these unique type of material positions. Next-generation commercial aircraft. We're very focused on where does this go. Obviously, we have a very strong position in the structured business today, but we want to make sure that we're ready for tomorrow. On the top there, you see the wing of tomorrow. That is an out of autoclave cured composite structure. So it's a green process compared to a traditional autoclave approach. We're actually laying up composite material on the tool. We're heating that tool, and we're curing that product again in an out of autoclave capability. These zero carbon or efficient airframes, we're pending positions on doing some work in these areas. We have the technologies to actually enable this, building aspherical or round fuselage and pressurizing that is something that people have been doing for a long time, building these big large flat structures that you want to pressurize turn out to be a little bit trickier. But we -- again, we have a position and we have the enabling technologies to make that happen. eVTOL. The thing about eVTOL is, it's all about weight. The battery technologies haven't progressed very far yet. And frankly, every pound that goes on these eVTOL vehicles is critical. And again, Spirit is very well known for having these topology-optimized vehicles. Very efficient from a weight perspective, structurally sufficient. We can certify those vehicles, and we have the capability to provide to these companies that need this capability today. And then finally, just a quick discussion about propulsion. I didn't put a lot of material in here about SAP and hydrogen. Trust me, we're involved in that. We have the enabling technologies to do that, but a couple of things here as we're looking at actually how to come up with new thrust reverser designs. That's out of our Belfast area. This is a product that's very far along. And then laminar flow lip skins, we have both a metallic version and a composite version that we've been working on. And this, again, enables efficiency in future flight. From a material optimization perspective, the second leg of the distinctive capabilities, we are very focused on ceramic matrix composites. These are the technologies that we all will fly on in the next, say, 5 to 40 years. These are the things that will enable these ever faster, further flights. Carbon-carbon. Carbon-silicon-carbon. Silicon-carbon. Silicon-carbon. Ox-ox and these ultra-high-temperature coatings, these are the items that are providing that. We're looking at it through multiple names. Duane talk about rocket motor bodies and throats. Of course, thermal protection systems for hypersonic systems. And then also looking at apertures or rate homes, if you think of them that way, for hypersonic flight that enable radars and thermal sensors to look through. So we're really very broadly focused in this area, and we have all of that capability. Thermal plastics, again, another form of a greener type of carbon fiber solution here. Thermal sets, once you cure them, they're set forever, and they don't recycle well. Thermoplastics provide a completely different paradigm when it comes to recyclability, and we can actually ultrasonically weld thermoplastics together so we can build bigger and bigger structure by combining them. And none of this would happen without specific capability to be able to take all of the things that we are developing and turn them into something that the engineers can actually certify. So we're very good at these computational materials, engineering doing the lab work to actually gather all the analytics that we need about the product and making it ready for final use. I talked about Digital Trinity. Again, this is a slide that we could spend hours on. You have heard about, I'm sure digital twins, digital threads. The thing that we've done here is, we've actually executed projects. Duane showed you one with Skunk Works, and we've been executing a lot of projects using these different various 3D technologies. The thing about Spirit is as we sit in this market space that's rather unique, we're not an OEM, so we don't get to dictate the solution that we get to use. But we sit in a market space where we service multiple customers. So our solution has to be agnostic to a different type of CAD package and how our customers work. And so we've spent time and energy on this, and we're actively deploying what we refer to as Spirit ONE, which is transforming our business systems to enable us to do everything in a digital fashion. And you saw a lot of that today. A lot of other things on the factory floor have already been digitized. And again, I think that's where we are clearly ahead a lot of our competitors. Lean metallic structures, we have been working on for quite some time, and we actually have parts flying on 787, a rapid plasma deposition 3D-printed titanium part. This is unique characteristic. This is the only part that I know of that is actually flying to parts that are printed , which is a different type of printing process. It will give us a tremendous advantage to go faster in the marketplace when we are prototyping, something that we've been spending a lot of time on. I'm going to give you a couple of smattering. There's a lot of different modalities when it comes to combining the materials, linear friction welding or steer friction welding. This enables us to create new designs, taking relatively small structure and continuously combining it into the structure that we ultimately want or need. We have gotten very good at extreme high temperature materials, nickel-based alloy materials sometimes referred to as Inconel. Frankly, again, to enable these high-temperature flights you have to have these type of materials. And over the last 3 years, we spent a lot of time focused on how to actually fabricate these parts -- and we stand in a very unique position. There are very few people that can do this and we do it very well. And we pioneered frankly, some new techniques that others don't know about, and our customers have stood up and understood that. Most of the air breathing hypersonic weapons or hypersonic flight enabled vehicles will use an Inconel-based type material. And those that are higher than Mach 5 will use this carbon approach that we talked about. So we're positioned both on the high-end extreme of hypersonic flight and the mainstream of hypersonic flight. And finally, we continue to explore more exotic methods of lean metallic structure construction. This idea of kinetic fusion allows us to take powdered metal and combine them in unique ways. In the past, you always had one type of metal. We can actually lay down different types of metal in the substrate and build up a structure that's completely unique that no one has ever seen before. Our ultra competitive composite business, again if you had the opportunity to go to the tech expo, Sean was showing this off or resin transfer molded spoiler. We've been doing resin transfer molding on 787 since the dawn of that program. And recently, this resin transfer molded product and spoiler line in Presswick was put in place, highly automated, great capability. I'm going to talk a little bit about dry fiber because I think it's important to where we're going. Today, we do a resident fused dry fiber wing in our Belfast facility. That's the A220 wing. But there's a new type of dry fiber product coming into version, which is called Fault Tolerant. We actually stitched to drive fiber together like basically almost like a sewing machine. And what that provides is we don't actually have to put fasteners into the structure in those areas to prevent damage in case it's a more Fault-Tolerant capability. So it's a lighter structure. A different manufacturing process, but that is one of the enabling technologies that will get us into these massive carbon fiber structures that aren't cylindrical. And then no discussion from Spirit would be remiss without talking about how we are the world's automator of composite structures. Duane showed you that photo on the lower left we have uniquely positioned ourselves to provide high temperature materials to the U.S. government, frankly, for this evolving hypersonic area. It was a desperate need. We knew that when we bought FMI, one of the synergies would be to actually do specifically this, and we've brought that capability. We also have a position with Albany. They provide 3D woven fabric, and what that does is allows us to lay down or essentially build the material up quicker and then densify that material into final product. And again, we are the folks that fundamentally invented auto fiber placement, which revolutionized everything in the aviation business as it relates to composites, and we continue to do that. That is one of the things that makes us who we are. Competitive towing solutions. You can see here that these are just -- this is a small sampling of the thousands of different things that we do every day on printing and making sure that our factories are as efficient as they can be. Kristen was showing you the specific example of what we referred to M-Gun, I don't know the words that she was using in there because I was talking with Jim about another product, but this is essentially putting the power of auto fastening in the hands of a mechanic. It's a very efficient means of actually drilling a hole and filling that hole. It also provides carbon fiber drill templates, which one mechanic can manipulate. So we're very focused on the safety of those mechanics and empowering them for success. Reconfigurable tools, -- we've had the capability for some time now, and we're starting to implement a lot more 3D printed large-scale tools to our factory to make it more efficient for our mechanics. And then finally, -- on this slide, we have an advanced manufacturing strategy team that focuses a lot on the capabilities about advancing our factories. You heard about Tower Hill. That was an AMS project. This is an example of what we expect to do in our Center of Excellence for Section 41 is coming up, but we're spending a lot of energy and time making sure that those technologies come to bear. And then finally, from a distinctive capabilities, accelerated learning curves. Duane showed you this same photo. But what's unique about this is we were able to do full-size determine assembly on this product with carbon fiber and metallic structure. It may not be obvious. It's a rather tricky proposition because they grow and shrink at different rates due to the thermal expansion, and we've been able to prove that we can do that. You saw how we're using augmented reality. We use that extensively. One of the things that has been a big enabler on our 737 line, all of our work instructions now are digital. Sam talked about how the next generation wants to have kind of these YouTube like video show me how to do it, and we did that. There was a big undertaking, a lot of leadership taken here to make this happen, but our mechanics can now sit down and see how the product is built and we tell them everything about what they need to do to build it, including what type exactly fastener or the torque values. None of that was really capable before. And in the interest of time, we talked about Opticrew and Floorsight. These are the tools that enable our factory floor, and we've digitized the entire factory floor so that they can be productive and know exactly where their work is at any given time, and be alerted in real time when something isn't going right or when they can need to redeploy clues because they're done early. But we have a lot of digital knowledge now about how that happens. We talked a little bit about Spifi. But the thing I wanted to say about Spifi here, what's unique about it is we've taken stop motion cameras just like Hollywood has done when you see avatars or things like that and people have balls on them. We have the exact same technology. What we've done is we can take this apparatus or other apparatus, and we can go anywhere on the fuselage, and we know where it is in aircraft coordinate space. That is a huge advantage that others can't do -- it's like a large CMM if you think of it that way. Okay. So that kind of wraps up the technology piece. I just -- I really wanted to spend a few minutes on this chart. I think this is probably the most important chart from a quality perspective. We understood that to enable our future, we needed to really focus on the culture of quality in our business. And I give a lot of credit to Tom for standing up and leading us from a safety perspective and quality. They are the fundamental building blocks of everything we do in our business. And by getting our entire team focused on making sure that everything we do is first centered on safety and second on quality, our team has benefited tremendously. We've seen the amount of things that maybe we have to necessarily rework, come down significantly. We're seeing our customer satisfaction go up higher. Our customers recognize that the value that we bring to them is higher. And frankly, we understand that our customers are becoming a lot more demanding of our big OEMs as it relates to quality. There was a discussion about skin quality a little bit. We are going above and beyond what the requirements ask of us to make sure that our customers are successful when it comes to quality so that they can enable the sale of that product to their customers efficiently and effectively. And we really have become customer-focused -- we listened to our customer more today than I think we ever have. We are working with them hand in hand, making sure that we have quality on our mindset first because we know it enables our manufacturing system. When I talk with our Board about quality, I mean that is one -- that is my primary job. I talked to them about the fact that I'm focused on building a production system and quality is a key component of that. And our team has done a great job of embracing that throughout the last few years as we've taken that opportunity to transform during the pandemic. We're building better teams. We're building them integrated. I'm honored to be the senior executive that's responsible and chairs, what we refer to as our various excellence councils. We have an operations council. So I have somebody that orchestrates this for me, but we meet as an operations team globally twice a month, and we share our experiences. We share the good things. We share the bad things. and we make sure that we're learning from one another and we're optimizing that. Along with that, we have a quality excellence council, and we have a safety council. Tom personally spends his time in the safety council with us every other week. That's the priority level that Tom puts on safety and quality. He is demonstrating and leading the company in all aspects of this. But symbiotically, we're able to interweave all of these things together and making sure that our teams understand the importance of how these 3 things interplay and the value that we get from it in our related businesses, and we've yielded a lot of capability from that. Just a real quick high level discussion about the things that we've done or the, I guess, the results of improving our quality. We've really spent more time teaming with our manufacturing processes and making sure that they're optimized. It isn't -- when we have a quality failure, we typically don't see that as a mechanic made that failure. We typically see it as the fact that the production system let him or her down. And so we focus it from that perspective, trying to help them be productive and making sure that they get it done right the first time. That's a very important aspect as we go up in rate and also, frankly, as the logistics get a little bit more challenging from a supply chain perspective, we want to make sure that we don't actually make a mistake and have to go get another part. So it's been very important. We've leveraged distinctive capabilities in our factories. Everything that you saw today came from Spirit. It came out of a research and technology project somehow some way and made itself to the floor. And then really just innovating how we inspect products, and we talked a little bit about Spifi and some of the other digital technologies. We've really listened to the voice of the customer. We've reduced the cycle time it takes to actually deal with, if we do have a defect, how long does that take, improving the closure rates of that and then making sure that our customers aren't waiting on us for anything. So this idea of 0 delinquent items. And I'm really proud to tell you that last year, we had no delinquent items with our customers. So we've made a lot of progress. And we hear what -- what's important to our customers. You probably read the press, you know about fad. We have ensured that our customer gets a fad-free product. And we've made really good improvement and we were recognized by one of our customers for making that happen. The other thing we realized is that we needed to perpetually ensure that when we're building the product, we're building it per specification, per engineering, per the planning. And so we've deployed a technique that we refer to as 3 lines of defense. You may have heard that in a couple of different areas. We've leveraged this a lot, not just from a quality perspective, but wherever we think -- we want to make sure that we have a surety in what we're doing. We're leveraging this type of technology. We actually spent time over the last year, and we have about one more year to go, ensuring that our processes and our products are actually in conformance with the engineering requirements. We've deployed teams to go verify all of that, which is mitigating any potential for future escapes. And then we deploy these 3 lines of defense perpetually. So when the mechanics and the inspectors are responsible for making sure that the product is done every day, but we also have our engineering team out auditing that process and product to make sure that indeed it is actually being built per specification. And where it's not, we can actually make adjustments or update the planning. And we've seen a lot of value by doing this, we can actually update the planning to make it a little bit more clear for the mechanics and inspectors so that they get it right. And then finally, we have a, what I would call that audit function, making sure that all of this works and is behaving, we're randomly selecting areas to dig in deeper. Some of the technologies that we're actually deploying. You saw very briefly what we refer to as Link -- it's a digital system that can actually -- it uses pixel differentiation. And we can see, if you look carefully in that, you can see that the bracket is flipped around. Those are the kinds of things that can happen from time to time. But with this digital capability, we can in that -- to the power of the mechanic, they can run the scanner and they can say, "Hey, something is not right here, go look at this". New scanning capability we brought to bear. We talked a little bit about Spifi. It's really a device called [indiscernible]. We're now using it on the exterior of the aircraft to look for dense and skin scratches, which used to be very subjective. Now we get a real-time instant feedback, topology map of if there is an area of concern, we can actually measure it and provide data on what it looks like. We talked about work constructions -- you saw an example of where we are using digital inspection tools. And again, this puts the power right in the hands of the mechanic to make sure things are right and in Spifi. So in summary, again, I use that word fuel. We see ourselves as the enabling function for the strategies that we're out executing -- we really have been recognized, and we will continue to lead the way on digital transformation and adoption. Our factories are more digital than anybody else in this industry. I can assure you, I've seen it. I've been out to look at others. We are on the cutting edge of that and it's providing a lot of value to us. And then finally, just this relentless pursuit of quality excellence, it is paramount -- it is critical to our customers and again, to their customers as well. And we've spent a lot of time getting our team focused on that, and it will serve us well as we continue to escalate in rate. So thank you. And at this point, we're going to go back over for a break in the technology area. I would love if you get an opportunity to go over and see all 3 areas today. My team is really proud of what they do, and I thank you for coming, and we'll see you back here in about probably 10 minutes or so. 11:15 [Break] .

So we'll get Mark come on up and Kevin and Kailash. We'll got it them in. So Kevin come on up. We've got Kailash. Right. So we went through all the presentations throughout the morning, and it didn't take time after each to do questions. We thought we'd have one opportunity to get all of this up here to answer any questions that the group has. And the thought was we'd spend about 30 minutes or so just to answer questions. So no particular order to that. It's just as you have a question, please raise your hand. We'll get you a mic, and then we will answer the question. The mic is important so that we can get -- so Jessica, Ken's got a question over here.

Yes. Ken's got a question right over there, Jessica.

So we'll get you a mic and then just please just say your name and your firm and then go ahead with your questions.

Ken Herbert with RBC. Maybe for Tom or Mark, if you could just start the discussion, it seems like the margin assumptions are based upon continued cost savings from the supply chain, from your supply base. As you look at that 60% as contracts roll over in that, what's a realistic assumption of as the contracts roll or how long is the typical contracts? I tend to think sort of 5 to 10 years, what's been historically the savings you've gotten as these contracts roll over from suppliers? And as we sort of think about what that contributes to the path to 16.5% over the next few years?

Well, supply base is important because as a manufacturer, about 65% of our cost is in the supply base, materials, raw material plus the materials that we buy. So that's important. Our contracts typically are 5 years. So about 20% are rolling over each year. But one of the things that we showed was during the pandemic, we actually extended several of the contracts. So our contract with Boeing on most products goes out past 2030. But on the 737 MAX, specifically, it goes out to 2033. So when the pandemic hit, one of the things we offered a lot of our suppliers was the opportunity to go all the way out to 2030 or 2033 for a couple of reasons. One, to provide them with some stability so that they could use that to go to their banks and get funding, but also to provide them with long-term continuity so they can continue to invest in their own automation and technology, but also as a hedge against inflation for us because we then would have a back-to-back contract with the suppliers and with our customer. So those were some of the things that we did with the customers to extend the contracts. But typically, about 20% of them otherwise are rolling over each year. And so the waves that I described are something that we've done multiple. We're on Wave 10 now. And so every year, we'll do 1 or 2 depending on the number of expiries that are coming up. And we're always at least 2 years out so that we have plenty of time. If there is going to be a transfer of work to manage that. But very often, there isn't. We negotiate with the incumbents and we either avoid the waves altogether or they keep the work. And so that's also a very good outcome. In terms of the savings, the savings vary significantly from package to package supplier to supplier, depends on a lot of different dynamics. But what's really important is to manage any transfer of work. And as I said in the last 5 years, we've transferred 26,000 parts. We'll probably do that number again in the next 5 years. And it's extremely important that we do that well and that we don't have any disruption. So it's a gated process. There are deliverables, very specific, very detailed deliverables. There's an operating mechanisms, there are dashboards to that transfer board process. We call it a plan for every part, and it's at a very, very detailed level, and we have a very large team that drives execution of that, which makes all of the initiatives in the supply chain that we describe possible.

Christine, so just remind everyone, if you could state your name and then the company you represent to that will help us with the Q&A.

Stanley -- Kristine Liwag, Morgan Stanley. So from the plant tours yesterday and the presentations you had today, it's clear you've made significant investments for efficiency, digitalization, automation, but I guess there's only so much you could do with a 50-year-old platform. If you were to apply all the learnings that you've gleaned from all the initiatives you've done since COVID, how much cost savings could you have if you were to have a new aircraft program at a clean sheet program? Is this something like 15%, 20% in savings for manufacturability and lower engineering costs -- can you give us an idea of how much that would be? And then also because right Boeing had said that if they were to look at a new aircraft program, they're leaning less on propulsion and more on other things like manufacturability.

Great. Well, what I would say is all of the changes that we've made in our current factories are very much applicable to next generation. In fact, we developed and designed and implemented them with next-generation aircraft in mind. And so it starts with the digital engineering that Kevin described, the Spirit ONE, where we can use 3D tools, very advanced 3D tools to design products that can then go into production very quickly. And we talked about it this determinant assembly, it's very important because the 3D designs allow us to put in holes in advance so that you don't need large tooling jigs to hold structures in place so that you can connect them. You can put the holes in advance. And it's not just pilot holes that have to be drilled like in the past. These are full-size holes. So when the products come together we just set them next to each other, and we can start fastening them. And that is a huge difference. You combine that with the things that we've done on digitization, automation, robotics, -- all those things are very much designed to enable next-generation products. So what type of savings could result don't know specifically because we don't have the necessarily the designs right in front of us. But it's significant. -- we're seeing some significant cost reductions on current programs, even brownfield programs that are 50 years old, we're seeing significant cost savings, and that can all be applied to future generations. And Kevin, maybe you could comment further.

I was going to give you a couple of numbers, maybe I happen to sit on the Digital Transformation Board for AIA. So I think 2 things that come to mind immediately. What we see across the industry with the new 3D type tools, 3DX, team center, those types of tools, as we're seeing about a 30% improvement in engineering costs. And probably the most profound thing though is that we'll be synthetically building an aircraft inside of the digital space, and we'll do that and we'll fundamentally be building it up to what we call like T100. We'll build a 100 different aircraft digitally and prove all that out before it actually hits the floor. So historically, the very first aircraft T1 is exponentially more expensive than the next -- second one, third one, fourth one and fifth one. And that's where these digital tools really come to play is we'll be able to do all of that synthetically prove out that we have a good production system, us and our partners and take advantage of that differential in cost between the first unit that we would have historically built and the first unit that we build using these digital tools. It's pretty profound.

And that's one thing I will highlight is you saw in the videos and in some of the presentations, these virtual reality simulations that we did of the advanced tools before we deploy them. And that enables us to work out some of the bugs before you ever start cutting metal and putting these things in the plant. For example, [ Tower Hill ] we had these virtual reality simulations, very detailed ones with significant animation in advance so that we could design and modify and refine it before we actually put it on the floor. And interestingly, when we go to like NIAR at WSU, the people that we engage with are people who do a lot of gaming and programming for gaming. And so it's -- it's a unique skill set, but it's very applicable to this virtual reality, and they've proven to be quite good at it.

So Seth, I think, Jessica.

Seth Seifman from JPMorgan. I guess if I could ask, when we look at those 2025 projections you have kind of what you're thinking about capital spending. And some of that is a modeling question, but maybe more importantly, what it's for in terms of how much more investment would you do proactively in some of this digital -- toward digital engineering and digital production, how much investment might be required? Or would you be doing to ramp up on some of the new defense programs that we should look at and see -- and then if I could sneak another one on the end. Maybe if you could talk about the production rates that underlie the commercial segment revenue target for 2025.

Right. So Mark, why don't you talk about capital expenditure?

We're -- we invested heavily from a capital standpoint in the 2017, '18, '19 time frame. We're capitalized and tooled up on 37 to 57 a month. We're tooled and capitalized in A320 in excess of 65%, 14 on 87, 13 on A350. So that heavy capital investment period that you guys saw back in that time frame where we were in the ballpark of $250 million, $300 million of CapEx to invest in that growth in those higher production rates. That's behind us. And so we obviously, throughout the pandemic, we've had to really be very cognizant of what we spent from a CapEx standpoint. But as we move forward here, the 2025 where we're going from a compounding annual growth rate on the commercial side, that capital and tooling is in place. We're ready to support that. There's going to be investment on the defense side that Duane has, but we're repurposing some of the twin aisle space and equipment, broaches, autoclaves, trim and drills, EI machines. We're taking advantage of that. So I think we're going to -- from a capital application standpoint, it's going to be very efficient usage over the next several years. That will allow us to make investments on the technology side some of the really cool things that Kevin showed as Digital Twins, Trinitys, Spirit ONE. And we'll be able to -- over the next couple of years, we spent $150 million last year. This year, it's going to be a bit north of that. Over the next couple of years, when we hit we get to those 20% growth rates, you'll see us CapEx be over $200 million. You won't see us spending the type of capital that we needed to, to put that infrastructure in place. So we'll spend more than we're spending now. It will be to focus on helping Duane and Kailash grow. A lot of the capital is in place for Sam's growth -- and then it's the new technologies, right? And so we're going to invest correctly. We won't overspend on that. We'll start to spend more from a CapEx standpoint as we move into '23 and '24 to make those investments so that we can grow our business, diversify and help support our customers with a lot of these new technologies that we think will help contribute to them winning new work as well.

Right. And then on the commercial rates, Sam, why don't you talk that for the next few years.

Sure. So we've already talked about 31 planes a month. So we've -- and we've talked about the 16.5% margin, we're assuming we get to 42 planes a month, and we're holding that at a steady state. That forms much of the foundation for as you're looking at the financials that we're projecting on the commercial segment. I think a couple of other points to make on that, the question on supply chain, that's a big piece in that. There are, as Tom talked about, there's a number of waves that occur and continue to occur because as contract blocks come up, every couple of years. There's another stream of supply chain opportunity. There's also a second piece of opportunity in terms of the make buy that I talked about, whether we do it inside. We push it outside or we changed the nature of the value chain on the make buy as well. So there's a number of those things that we're thinking about that all contribute up towards what we're looking at on that financial horizon.

Somebody else asked me the same question. When we look long term to 2025, these are kind of estimates, right? They're not guidance or targets. Those assumptions are based on a commercial aerospace recovery from a single aisle and from a twin-aisle standpoint. And so the question somebody asked me a break was, well, this 2025 assume 42 a month on 37. It assumes higher than that. okay? We're assuming single-aisle recovers by 2025, whether Boeing is at 47 or 52. The assumption is Airbus is at 65, 65 plus on A320 that we're back at more normalized production rates on the twin aisles, not back to 14, not back to 10. But the A350 and 787 are going to be the workhorses that the wide-bodies that wide-body customers are going to go to. So we're expecting those to be in the 6% to 8% range when we get out to that time frame. So for modeling purposes, we're expecting some recovery -- we don't expect anything well beyond what we saw in 2018 and 2019, but those foundationally are based on assumptions that 37 continues to recover, 320 stay strong. and the Twin-Isle start to get back to some level of normalcy in '25.

Mike Maugeri Wolfe Research. A question for Kailash. On aftermarket growth, how are you thinking about the share gain that you're going to need to reach the 2025 goal growth you expect for new customers and repairs that you're already working on versus sort of the consideration for adding new capabilities, new capacity?

Yes. Thank you. So -- it depends on the platform. So 37, 777, is pretty much mostly historically done out of Wichita. We're starting to do that in Dallas. So we feel Americas is pretty well covered for those platforms. We're taking the capability now to -- or we've started taking the capability to Belfast to start supporting those platforms in the EMEA region. So historically, Belfast did not do any work on those platforms or did very minimal. So there is opportunity there. In the EMEA region, we've talked about looking for a partner in the Middle East -- so you can think about the platforms there and in the Middle East. And that's again something that we can capture on 37, 777 and then in the APAC region, right? So -- so on the 37 and 777, we're pretty well covered Americas historically. But then going forward, there is opportunity in EMEA, APAC, Middle East. A330, Boeing 757, we've traditionally done that out of EMEA. We've done that a lot of Belfast. And now we could start -- and we've done a little bit out of Dallas because that was also part of Bombardier. But we have not done a lot of that in China Mainland or in APAC. So you can think about those platforms in those regions. So in terms of share gains, it would be platform-specific, -- and our growth plans of going into China Mainland or Middle East or Central America should give you a sense for the fleet that's there and what we can potentially do.

I think Sheila has got a question, Jessica

Sheila Kahyaoglu from Jefferies. Mark, this one's for you. Thank you all for all the time you spent with us today. But maybe can you talk about as you put together your 16.5% forecast, and I know you said it's not a guidance parameter, but it's still a number we got. As you think across the programs, whether it's defense or commercial, what do you think about where you have the most confidence and where you see the most risk?

That's a good question. Tough question as well. I think there's a couple of different ways that I can go pivot on that. We really feel good about defense and where they're going from a revenue growth standpoint and the stability as it relates to those margins that they contribute. Kailash and his business is doing a great job, 20-plus percent margins. It's really great to see a structures a company like us be able to have a part of our business that generates those types of margins. But I think really over the next couple of years, the strength of our margin improvement is going to be as the single aisle rates go up on 37 and A320, the fixed cost absorption, some of the digital automation and cost improvements that we put on there. The ability to see those rates go higher and hold and recover, I think, is going to be highly important to us as we think about the 16.5% margins that will continue to be commercial, the largest portion of our overall business over the next couple of years. And so I think as long as the -- or the single aisle rates hold, right, over the next couple of years and commercial aero recovers, I think 37 and A320 will lead the way to help us really achieve those 16.5% margins. And as it relates to risk, there's we're all up here. Our job is to manage risk, right? Our job is to deal with the perturbations that happen in the marketplace. But I do think near term, the things that I really worry about is inflation, right? You're looking at labor inflation, you're looking at freight costs. You're looking at the length of time that product is on the water that's driving additional liquidity or capital requirements. And so I think near term, inflation is a big pressure for us. And then I think over the next couple of years as we grow and we add it's going to be about resources, labor, right? The baby boomers are retiring, and we've got to work really hard to attract people to come to go work in aerospace. And I think there's a lot of automation. A lot of our jobs aren't just driving rivets, right? People are operating machines. And it's a good paying career and you can really provide for your families. And so I think over the next couple of years, those are going to be big watch items for us is inflation and then labor resources.