By Spirit AeroSystems, a prominent aerospace supplier, announced on Wednesday that their key customer, Boeing, has agreed to assist them in resolving their production challenges. This partnership has had a significant impact on Spirit AeroSystems stock (ticker: SPR), which soared by 20% to reach $20.70 during early Wednesday trading. In contrast, the S&P 500 and Dow Jones Industrial Average experienced declines of 0.5% and 0.4% respectively.
The support from Boeing holds immense importance for Spirit AeroSystems, as they supply fuselage sections to numerous Boeing aircraft. In fact, Boeing accounted for approximately 65% of Spirit Aero’s revenue in 2022.
Patrick M. Shanahan, CEO of Spirit Aero, expressed his thoughts on this collaboration, stating, “Our collective teams will focus on further generating supply chain performance and resiliency.” Shanahan further added, “This united effort to synchronize our production systems will enable greater market responsiveness and delivery assurance.”
The agreement also encompasses substantial financial assistance. As per the filing with the Securities and Exchange Commission, there will be “recurring price increases” for 787 “shipsets,” referring to the parts sold to Boeing by Spirit Aero. Additionally, price reductions are expected for 737 shipsets starting in 2026.
Typically, price reductions accompany higher volumes. Consequently, these changes are projected to generate more revenue in the near future. According to the SEC filing, Spirit Aero anticipates an additional $60 million in revenue in 2023, followed by $395 million between 2024 and 2025. However, there will be a decrease of $25 million between 2026 and 2028 and $240 million between 2029 and 2033.
In total, the partnership is expected to bring in an additional $190 million in sales over the next decade, with immediate benefits.
Spirit AeroSystems and Boeing Reach New Agreement
Spirit AeroSystems, an aerospace manufacturer, has reached a new agreement with Boeing, which includes pricing changes and other financial considerations. The deal aims to address various challenges that Spirit Aero has faced in recent years.
Background Challenges
Spirit Aero’s difficulties began with Boeing’s issues related to the 737 MAX jet, which experienced two fatal crashes between March 2019 and November 2020, leading to a worldwide grounding. Additionally, the outbreak of Covid-19 further exacerbated the situation by causing a decline in air travel demand and creating manufacturing supply-chain disruptions. Moreover, Spirit Aero had to deal with quality problems on some of its 737 MAX products due to defects.
Financial Impact
As a result of these challenges, Spirit Aero’s shares have significantly declined, with a 16% decrease over the past year and a staggering 75% decrease over the past five years. The newly-formed agreement between Spirit Aero and Boeing is a crucial step towards making Spirit Aero stock investible again. Furthermore, it will also benefit Boeing as it seeks to ramp up production of the 737 MAX. Ensuring a robust supply base is integral to achieving this goal.
Mutual Benefits
Both Spirit AeroSystems and Boeing are pleased with the outcome of the agreement. Boeing acknowledged the significance of their collaboration with Spirit Aero, highlighting that it will enhance operational stability in their production system and enable them to fulfill their customer commitments.
Looking Ahead
Following the news of the agreement, Boeing’s stock experienced a 0.7% increase in early trading. As the aerospace industry gradually recovers from the challenges posed by the 737 MAX crisis and Covid-19, this new agreement is expected to contribute to the resiliency of both Spirit AeroSystems and Boeing.
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