Analysts agree new Boeing contract has Spirit in right direction - Wichita Business Journal
Spirit had been bleeding, with stock prices spiraling since January. Wichita's Spirit AeroSystems, the largest employer of the company, is reportedly beginning to recover from a year-long downturn with a new contract with Boeing (NYSE: BA) and a $100 million infusion from its biggest customer, with analysts predicting a positive outlook for the company. The agreement was announced on Wednesday, bringing Spirit's stock prices up from a mid-September dip. However, analysts believe interim CEO Patrick Shanahan's 31-year tenure with Boeing as a favorable factor. The company's contracts with Boeing were reportedly not paying enough to cover the costs of the fuselages, a six-day summer strike by the company's machinists, two major production errors, and a loss of older, experienced workers to retirement were key issues. The total loss for Spirit in 2022 was $546 million, or $5 million more than the company lost in 2021, according to analyst Brian Foley Associates. The new agreement is expected to be short-term solution, with both companies seeking a renegotiated contract with Airbus.
Publicado : Hace 2 años por Alice Mannette en Business Travel
With a new leader, a redrafted agreement with its biggest customer, and a $100 million infusion, Wichita's Spirit AeroSystems would seem to be beginning to climb out of a year-long hole.
Neither Spirit, Wichita's largest employer, nor the Boeing Co. have given details of how a renegotiated contract that's more favorable to Spirit came together, and whether it started before or after CEO Tom Gentile resigned Sept. 30. But analysts see interim CEO Patrick Shanahan's 31 years with Boeing as a favorable factor.
"Given his track record at Boeing, he probably had a great deal of credibility with them," said Richard Aboulafia, an aerospace analysts with AeroDynamic Advisories. "They probably were more likely to see things his way. And, of course, there wasn't that adversarial (posturing)."
Spirit had been bleeding, with stock prices spiraling since January. Four major issues were in play: The contracts with Boeing (NYSE: BA) were reportedly not paying enough to cover the costs of the fuselages; a six-day summer strike by the company's machinists left the company paying higher wages and benefits; two major production errors caused delivery delays by both companies; and a loss of older, experienced workers to retirement.
Analyst Brian Foley of Brian Foley Associates said Gentile revealed a sign of things to come in early September.
"Essentially, we also saw, reading the tea leaves, when Spirit (and Gentile) released kind of a cryptic note saying that it can't continue as it is — a growing concern with the current Boeing and Airbus contracts, which is probably the truth," Foley said.
Since the announcement of the agreement on Wednesday, Spirit's stock has remained up from its mid-September dip. The stock price hit a 10-year low last month, and Gentile resigned less than two weeks later. Stock prices have plummeted for the company since January, heading downward from around $30 in January, hitting $14.94 on Sept. 20.
Spirit (NYSE: SPR) shares went up Wednesday after the agreement was announced. Spirit ended the day Tuesday at $17.15, moving up to $20.85 by 9:30 a.m. Wednesday, and ended the day at $21.22. It ended the week at $21.43.
Aboulafia and Foley said they think the new Spirit-Boeing agreement is a short- to medium-term solution, and both said a renegotiated contract with Airbus must follow.
The total loss for Spirit in 2022 was $546 million, or $5 million more than the company lost in 2021.
In addition to the work at Spirit's Wichita facility, the aerospace manufacturing company maintains two manufacturing plants in the United Kingdom, both of which service mainly Airbus aircraft. Last year, both subsidiaries lost millions.
Short Brothers in Belfast, Northern Ireland was $227 million in the red, while the Spirit subsidiary in Scotland was $16 million down, according to an audit.
Although Spirit AeroSystems' subsidiary in Prestwick, Scotland lost money in 2022, the bleeding was $16 million — half as much as 2021.
Where does Spirit go from here?
One of the largest variables to the new agreement is whether a production increase will adjust what Spirit charges for its assembly work. The company builds the forward fuselage on all Boeing commercial jets, and the entire fuselage on the 737.
"That, of course, means that Shanahan and others are assuming that as volume goes up, and as they move up the learning curve, costs will come down," Aboulafia said. "That's probably right, but there are no guarantees in life."
The $100 million going from Boeing to Spirit has been described as necessary to invest in tooling at Spirit. The aim is to bring consistency to the production lines in a year when errors on the 737 Max and 787 Dreamliner lines caused delays, and also to prepare the supplier to increase output.
Boeing's stated goals for 737 Max production is 38 per month soon — seven more than the current rate — then 50 jets monthly in three years. But Reuters reported recently that Boeing has told suppliers it wants to be at 57 jets per month by mid-2025.
The Dreamliner plans are from four per month now to five per month by the end of the year, eventually rising to 10 per month in 2026.
Boeing is also in negotiations with Airbus on reworking the companies' contract.
Temas: Kansas, Aviation, Airlines, Boeing, Wichita