Spirit AeroSystems continues to slide, falling another 4%.

Spirit AeroSystems continues to slide, falling another 4%.

Spirit AeroSystems Shares Continue Downward Spiral Amidst Strike and Labor Agreement Costs

Spirit AeroSystems

Spirit AeroSystems, the aerospace manufacturer responsible for producing major components for all Boeing jetliners, has seen its shares plummet further, dropping an additional 4% after disclosing significant costs associated with a recent strike and new labor agreement. This happens just a day after the company saw a sharp decline of 27% when executives revealed a litany of challenges.

During the second quarter, Spirit AeroSystems incurred $105 million in losses related to Boeing and Airbus aircraft production, along with a faster-than-expected cash burn rate. The company highlighted ongoing issues with supply chain instability, rising labor costs, and inflation as factors that will continue to impact its performance. Cash flow is not expected to recover until the period between 2024 and 2025. With such concerning financial figures, it’s no surprise that the stock has lost about a third of its value within two days, further eroding investor confidence.

Moreover, Spirit AeroSystems disclosed the potential need to refinance its debt due in 2025. Currently junk-rated by major ratings agencies, the company’s bonds face an uncertain future. Analysts from Truist Securities downgraded the shares to a “hold” rating from “buy” and expressed their belief that the lack of core cash generation will slow down the company’s deleveraging process.

Spirit AeroSystems holds a unique position in the aerospace industry, having been spun off from Boeing in 2005. It continues to be a major supplier for Boeing, producing crucial components such as the entire fuselage of the iconic 737. Over the years, the company expanded its customer base to include Airbus and also acts as a supplier for defense contracts. This places Spirit AeroSystems in a position where there are few alternatives should the original equipment manufacturers (OEMs) opt not to take on certain work themselves.

J.P. Morgan analyst Seth Seifman highlighted this dependency, noting that “there is really no alternative supplier for much of what it does if the OEMs do not want to take on the work themselves.” There are concerns regarding whether Spirit AeroSystems will need to renegotiate its labor contracts with Boeing and Airbus. It remains unclear what actions Boeing will take to assist Spirit in improving its financial health. In contrast, Airbus possesses an in-house aerostructures capability and is therefore less reliant on Spirit.

RBC Capital Markets analyst Ken Herbert suggests that Spirit AeroSystems is unlikely to see any relief in near-term pricing. This is due to supply chain pressures and fixed-price contracts that limit the company’s potential for increased profit margins. Herbert goes on to state that “instead, we believe Boeing and Airbus are likely to continue to contribute customer advances, allowing Spirit to benefit only as production rates improve.”

Given Spirit AeroSystems’ need to refinance its debt, its ability to generate cash becomes a crucial factor in determining whether it will be able to secure favorable terms. Analysts suggest that the company’s cash-generating potential will play a significant role in its refinancing efforts. Currently, Spirit AeroSystems has $1.2 billion in outstanding bonds set to mature in April 2025, according to Refinitiv Eikon data.

In conclusion, Spirit AeroSystems finds itself in a challenging position as it confronts significant costs stemming from a strike and new labor agreement. The company’s stock has experienced a rapid decline, with concerns over cash flow, supply chain stability, and inflationary pressures contributing to investor unease. As it seeks to refinance its debt, Spirit AeroSystems’ ability to generate cash and navigate its relationships with Boeing and Airbus will be critical in determining its future financial health.

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