Boeing (NYSE:BA) has pledged support to its key supplier, Spirit AeroSystems (NYSE:SPR), to overcome production issues, a move that led to a 20% surge in Spirit's stock (NYSE:SPR) on Wednesday. Spirit AeroSystems, which supplies fuselage sections for various Boeing jets and relies on Boeing for 65% of its revenue, is working with Boeing to improve supply chain performance and resilience.
In a statement made by Spirit Aero's CEO, Patrick M. Shanahan, he emphasized the importance of this collaboration as the company navigates the aftermath of the 737 MAX jet crashes and the COVID-19 pandemic's impact on air travel demand and supply chain disruptions.
Under the agreement, Boeing will provide financial assistance to Spirit Aero through recurring price increases for 787 chipsets and price reductions for 737 chipsets beginning in 2026. These pricing adjustments are expected to generate a $190 million sales increase over the next decade for Spirit Aero.
The support package also includes covering tooling costs and modifications to product liability claims, along with restructuring finance payments from Spirit Aero to Boeing. This aid is crucial for Spirit Aero as it continues to grapple with the twin challenges of past aircraft incidents and current global health crisis-induced disruptions.
InvestingPro data shows that Spirit AeroSystems operates with a significant debt burden and has been quickly burning through cash. The company's revenue growth has been slowing down recently, and it operates with a poor return on assets. The company's stock price movements are quite volatile, and it has taken a big hit over the last six months. However, the company's liquid assets exceed short-term obligations, which could be a positive sign.
On the other hand, Boeing, a prominent player in the Aerospace and defense industry, has been experiencing accelerating revenue growth. However, the company has been trading at a high EBITDA valuation multiple and does not pay a dividend to shareholders. InvestingPro data shows that Boeing's stock is in oversold territory, and its price has declined by 10.93% over the last six months.
InvestingPro Tips suggests that both companies may face challenges in the near future. For Spirit AeroSystems, the management has been aggressively buying back shares, which could indicate confidence in the company's future, but it may have trouble making interest payments on its debt. For Boeing, 14 analysts have revised their earnings downwards for the upcoming period, suggesting potential difficulties ahead.
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