Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Spirit AeroSystems Are Up Today

By Lou Whiteman – Jun 29, 2020 at 2:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock is taking off along with the Boeing 737 Max.

What happened

Boeing's (BA -5.37%) 737 Max took to the skies on Monday, and shares of Spirit AeroSystems (SPR -3.34%) joined the airplane in gaining altitude. Shares of Spirit, a key supplier to Boeing that makes the fuselages for the 737 Max, were up 11% in midday trading on Monday.

So what

Spirit is a onetime Boeing subsidiary that still relies on its former parent for the bulk of its revenue. The stock has been under pressure since well before the COVID-19 pandemic, weighed down by issues with the 737 Max that have caused the plane to be grounded for more than a year.

Boeing continued to manufacture 737 Max planes during much of the grounding, but the inventory of built-but-not-yet-delivered aircraft has caused the company to slow production plans into 2021.

Boeing's 737 Max in flight

Image source: Boeing.

Holders of Boeing and Spirit shares need the 737 Max to be recertified to fly, which would allow Boeing to start working through its inventory and eventually rebuild its production levels. Boeing hopes to have the plane recertified by regulators by the fall, and on Monday it took an important step in that direction when it conducted its first Federal Aviation Administration test flight.

There's also news from Europe that Spirit investors should be watching. Airbus is canceling plans for a new nacelle to house engines for its A320neo. Those nacelles were set to be manufactured by a Bombardier unit that Spirit has a deal to acquire for about $1 billion in cash and assumed debt.

Spirit had planned to buy the Bombardier unit as part of its effort to diversify and lessen its reliance on Boeing. On the surface, Airbus' decision to cancel the nacelle is not good news for Spirit, but it seems possible that the news is material enough to allow Spirit to cancel the planned acquisition or at least modify the terms.

The purchase was announced prepandemic, and with airlines scrambling to cut costs and defer aircraft orders, the Bombardier assets likely aren't worth what they were late last year. If Spirit can use the Airbus decision to go back to the table, that would be a plus for the company and its shareholders.

Now what

Seeing the 737 Max in the air again is welcome news for Boeing and Spirit, but investors should be reminded that both companies have a long way to go to get back to normal. Given the financial stress the airline industry is facing, it will be impossible to quickly move inventory in this environment, and the commercial aerospace sector is likely to be pressured for years to come.

Spirit could still use to diversify, but the Bombardier deal at current terms would likely put the company at risk of violation of its bank covenants. The 737 Max is going to attract most of the headlines, but Spirit investors should be watching closely to see what happens next with Bombardier to get a better feel for what the future has in store for this beaten-down aerospace stock.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Spirit AeroSystems Holdings, Inc. Stock Quote
Spirit AeroSystems Holdings, Inc.
$24.00 (-3.34%) $0.83
The Boeing Company Stock Quote
The Boeing Company
$131.26 (-5.37%) $-7.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.