Spirit AeroSystems’ stock up 14% after report Boeing in talks to buy supplier

News that Boeing Co. is interested in buying supplier Spirit AeroSystems Holdings Inc. was met with a mix of surprise and skepticism on Wall Street Friday.

The Wall Street Journal reported earlier Friday that Boeing was interested in buying Spirit AeroSystems, a supplier that is at the center of several recent quality problems confronting the aerospace and defense company.

The report cited people familiar with the talks. Spirit AeroSystems

did not immediately return a request for comment about a potential deal. Boeing

said it does not have “anything to add.”

Investors will want to know whether this acquisition would solve the quality issues at Boeing, but the short answer to that question is no, at least not in the near term, Ken Herbert of RBC Securities said in a note Friday.

Broadly speaking, the aerospace industry is trending toward more vertical integration after several years of outsourcing, Herbert said. But the news that Boeing is pursuing Spirit AeroSystems came as a surprise, he said.

“We do not believe acquiring [Spirit AeroSystems] represents a near-term fix” for Boeing and the concerns about its 737 Max airplanes, Herbert said. Moreover, a purchase would add to Boeing’s near-term execution issues, even though Spirit was once part of the aerospace and defense giant, he said.

On the flip side, there are potential long-term benefits for Boeing from “greater integration around tooling, supplier management, production best practices, and execution, among other factors,” he said.

Shares of Spirit AeroSystems gained more than 14% in midday trading Friday, while Boeing shares were down slightly more than 1%. According to the report, Spirit, headquartered in Wichita, Kan., has hired bankers to explore its options.

Spirit AeroSystems made the fuselage involved in the mid-air blowout of a panel on an Alaska Airlines plane last month.

A preliminary report earlier this month found that bolts were missing on that plane. Aviation regulators this week gave Boeing 90 days to come up with plan to improve safety and quality problems.

Last year, Boeing and Spirit disclosed problems involving the 737 Max jets that had slowed production.

Sheila Kahyaoglu, an analyst at Jefferies, said in a note Friday that a potential acquisition would be dilutive to Boeing’s free cash flow, to the tune of 3.6%, or $297 million, to Jefferies’ 2025 cash flow estimates of $8.2 billion.

Assuming Spirit assets connected with France’s Airbus SE

are sold, the deal would not impact Boeing’s top line, Kahyaoglu said. According to the report, Spirit AeroSystems is also exploring the sale of its Ireland operations that support Airbus production. Those represent less than one- third of Spirit’s sales, the analyst said.

In the last 12 months, shares of Boeing have fallen 1.8% and shares of Spirit AeroSystems have dropped 4.5%. That contrasts with gains of around 30% for the S&P 500
in the same time frame.

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