Long-troubled Spirit AeroSystems (SPR 2.14%) ended the year on a high note, with word coming that its former parent, and most important customer, would be increasing production heading into 2024. Investors rallied into the shares as a result, sending Spirit stock up 15.6% in December, according to data provided by S&P Global Market Intelligence.
The travel lull is beginning to ease
Spirit is a one-time subsidiary of Boeing that is responsible for the manufacture of airframes including the 737. The company fell on hard times during the pandemic, as airlines reduced new plane orders, and has since faced some internal manufacturing issues that were a drain on cash. But it got a big boost in October when Boeing agreed to a new deal to help Spirit smooth out production issues and bolster is balance sheet.
Boeing news is likely responsible for Spirit's continued push higher in December. Though the aerospace giant is not yet manufacturing planes at a level it anticipated prior to the pandemic, Boeing reportedly is planning to increase the number of 737 planes it manufactures each month as soon as the first quarter of 2024. More planes on the production line means more cash flow for Spirit.
The October deal with Boeing was a cash advance of sorts for Spirit, which could crimp the profitability of each additional airframe it manufactures. But the higher production levels are a key to long-term success for Spirit and Boeing, and investors looked favorably on the update.
Spirit is also likely enjoying some positive sentiment from China's decision to reopen its skies to the 737 MAX. China is the world's most important aviation market, and the prospects of the MAX being off the table there would have severely limited the growth potential of the program.
Is Spirit a buy heading into 2024?
With the December rally, Spirit AeroSystems stock is a near double since the beginning of October. But that rally has only taken the shares back to where they were to start 2023, and the stock remains down nearly 70% from its pre-pandemic highs.
Spirit and Boeing have a unique relationship, with both companies reliant on the other for their future revenues. Both companies want to squeeze as much profit as possible out of the other, but neither can afford to see the other disappear.
Spirit has attempted to diversify its revenue base, picking up business with Boeing archrival Airbus through acquisitions and new contract bidding. But there is only so much business to be had from this global duopoly, and Spirit has found it challenging to move beyond its core markets.
The company is much healthier than it appeared only a few months ago and should be able to stay on course from here. But given the challenges of this business investors would be best served looking elsewhere for long-term aerospace investments.
