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UPDATE 3-Spirit AeroSystems shares drop 30 percent on warning

Thursday, 25 Oct 2012 | 6:28 PM ET

* Expects $1.82 per-share charge in Q3

* Expansion, new customers contributed to cost overrun

* CEO says he is ``extremely disappointed''

(Adds detail from analysts' conference call)

Oct 25 (Reuters) - Spirit AeroSystems Holdings Inc sounded an alarm Thursday about sizable cost overruns on parts it supplies to major aircraft makers, news that sent its stock tumbling more than 30 percent in active trading.

The Wichita, Kansas-based company, which was sold by Boeing Co in 2005 and still makes wings, fuselages and other parts for it, said it would take a charge of $590 million, or $1.82 a share, in the third quarter.

By early afternoon, Spirit's stock was down 32 percent at $14.65, wiping $1 billion off of its market value.

The news threw into question the company's profit for the quarter, and raised questions about Spirit's ability to forecast performance. Analysts had expected Spirit to post 53 cents a share in profit when it reports earnings next week.

``How could you have made a miss quite that big and not seen it earlier?'' an analyst asked on a call with Spirit Chief Executive Jeff Turner and CFO Phil Anderson.

Turner said the company had expected costs to get better than the did. ``We're getting significant improvement, but not to the level we had forecast,'' he said.

The charge includes a net gain of $219 million, or $1.08 a share, from a severe weather insurance settlement that the company booked in the quarter, the company said the call.

The largest single charge is $184 million relating wing structures production for Boeing's 787.

The charges resulted from the company's struggle with complex product development efforts, and Spirit said its lenders had agreed to adjust certain loan and credit facilities to accommodate the charges. The company said it had not defaulted.

Spirit said the charges arose when it rapidly took on work from new customers, expanded its manufacturing sites and broadened its product design abilities while trying to manage several product development programs that were experiencing design changes and delays.

``I'm extremely disappointed,'' Turner told analysts. ``As we have consistently described, the biggest risk for Spirit has been, and continues to be, the 787.''

Turner said efforts to diversify and grow had ``proven very complex'' and that the company was applying ``lessons learned.''

In addition to that for the 787, the charges include $163 million on the wing program from the Gulfstream G650 business jet; $151 million for the G650's engine nacelle package; and $88 million on the wing program for the Gulfstream G280 business jet, among other items. Gulfstream is owned by General Dynamics Corp. The company noted that its cash position had improved substantially this year.

Spirit has a history of recording charges for plane programs, but the size of the charges caught the market off guard.

``Management had previously mentioned that charges would likely come through this quarter, but this magnitude is a surprise,'' RBC Capital Markets analyst Robert Stallard said in a note to clients.

``The question that we have is what happens next? Many of these contracts last for a number of years, and what assurance is there that similar charges can be avoided in the future?'' Stallard asked.

(Reporting by Alwyn Scott and Karen Jacobs; Editing by Bernadette Baum and Andrew Hay)

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