What happened
It's been more than a decade since Spirit AeroSystems Holdings (SPR -1.67%) was spun out of Boeing (BA -1.02%), but the aerostructures manufacturer still has close ties to its former parent. Spirit AeroSystems shares fell 16.2% in December, according to data from S&P Global Market Intelligence, as Boeing announced additional cuts to its troubled 737 MAX program.
So what
Spirit manufactures the fuselage for the 737 MAX, the commercial aircraft that was grounded last March following a pair of crashes that killed more than 300 passengers and crew. Boeing had initially hoped to have the plane airborne again by the end of 2019 and worked out an agreement with Spirit and other key suppliers to keep the plane's supply chain running, but the company failed to hit its internal deadlines.
Aircraft fuselage on the assembly line. Image source: Getty Images.
Boeing in December announced it would suspend production of the 737 MAX until regulators approve a fix for the plane's issues. Spirit responded soon after, saying it would temporarily suspend 737 MAX production. The 737 accounts for nearly half of Spirit's total revenue, and Spirit warned that the suspension would have an adverse impact on its finances.
The suspension hopefully will be a short-term issue, but Boeing seems unlikely to carry through on planned increases in production once the plane is airborne again as the aerospace giant works through a glut of built but not-yet-delivered inventory. Spirit said it is evaluating potential actions to align its cost base with lower-than-expected production levels in 2020.
Now what
Given Spirit's close ties to Boeing and the 737 MAX and the issues that program continues to have, it's pretty remarkable that the stock was down only 16%. Investors are still betting that Boeing will eventually resolve the 737 MAX issues and that the plane will eventually go on to be the massive commercial success that forecasters had predicted.
Spirit was well aware of the danger of being too reliant on one customer and one airplane even before the 737 MAX was grounded and has been working to diversify. The company in 2018 bought Asco Industries for $650 million, gaining additional exposure to Boeing archrival Airbus, and doubled down on that strategy in November when it announced plans to buy the aerostructures business of Bombardier $1.09 billion.
It was a rough 2019 for Spirit, but the company has the wherewithal to fly through the turbulence. 2020 figures to be challenging, but the long-term future remains bright for Spirit AeroSystems.
