What happened
Boeing (BA -0.24%) has a fresh problem with its 737 MAX, and it appears that supplier Spirit AeroSystems Holdings (SPR -0.66%) is at fault. Shares of Spirit were down about 20% at 1 p.m. ET on Friday after a major new issue arose in the company's most important program.
So what
Boeing and Spirit have a long history together. Spirit was part of Boeing until 2005 and remains a primary supplier to its commercial programs, including the 737 MAX line.
Late Thursday, Boeing disclosed that it was pausing deliveries on some 737 MAX jets to address incorrectly installed parts. Spirit is the contractor that works on fuselage assembly, and the issue apparently relates to two of the eight fittings that Spirit attaches to the jet's vertical tail.
Boeing shares are falling some on the news, but Spirit stock is taking the bulk of the hit. The 737 program is arguably more important to Spirit than to Boeing. Spirit generates about 40% of sales from the 737, compared to about 25% for Boeing. And a delay in deliveries, coupled with any extra work Spirit has to do to remedy the issues, could cost the company its chance to be free cash flow breakeven this year.
Now what
The good news for Spirit is that Boeing likely can't break away from the company even if it wanted to. Nearly two decades after the spinoff, the two companies have a very close relationship, and it would take years for Boeing to replicate what it gets from Spirit.
In recent years, Spirit has been trying to lessen its reliance on Boeing, and to diversify its production so no platform is so important that it can ground the company. This latest incident highlights the need for diversification, while it could potentially make it more difficult for the company to win new business elsewhere.
For now, the important thing is for Boeing and Spirit to resolve the issue and get the assembly lines back up as soon as possible. Investors are understandably nervous about what this latest development will mean for the stock.
