The Boeing (NYSE:BA) 737 MAX is flying again, and it's giving a lift to the stocks of Boeing suppliers, including Spirit AeroSystems Holdings (NYSE:SPR) and Triumph Group (NYSE:TGI) as well. Shares of both companies rose as much as 10% on Thursday after Boeing got its first major order for the plane in nearly two years.
The 737 MAX was grounded in March 2019 after a pair of fatal accidents, and both Boeing and its suppliers have suffered in the months since. Though Boeing continued to manufacture the plane through most of the grounding, it did so at a reduced rate that put a strain on suppliers including Spirit and Triumph.
But last month, the 737 MAX was cleared for takeoff, and Boeing on Thursday got a major boost when European discount airline Ryanair announced plans to buy 75 of the 737 MAX planes. Ryanair is already a major Boeing customer, and the deal was likely timed to coincide with the plane's return to service, but it is still a major sign of confidence for the beleaguered jet.
Spirit AeroSystems, a former Boeing subsidiary that makes the fuselages for the 737 and other planes, is also benefiting from positive comments by Cowen analyst Cai von Rumohr. In a note, the analyst called Spirit one of his best ideas for 2021, saying the company is the best way to invest in a 737 MAX return to service.
The 737 is Spirit's largest and most profitable program, von Rumohr notes, representing 51% of total company sales in 2018. By comparison, the plane represents about 8% of total Boeing revenue.
The outlook for these companies is improving, and I agree with von Rumohr that Spirit is a more interesting company to buy on the 737 MAX return than Boeing is. But investors should still be cautious here.
Boeing has to work through an inventory of more than 400 planes built but not yet delivered during the 737 MAX grounding, and might find it difficult to place all of those jets when airlines are scaling back growth plans due to the pandemic.
Boeing had once hoped to be manufacturing more than 50 737 MAX planes per month by now, but instead will be lucky to get production up to a rate of more than 30 per month by early 2022.
For a long-term shareholder able to ignore turbulence, there is a lot to like about Spirit and the direction the company is going. But investors should note that a good deal of patience will likely be required if they are buying in today.