Shares in Boeing (BA 0.76%) supplier Spirit AeroSystems (SPR 4.30%) declined by 13.6% this week through Friday morning. The decline comes in a difficult week for both companies, as Boeing’s customer Southwest Airlines told investors it plans to reduce capacity in light of delivery delays on Boeing planes. That raises questions over customers’ willingness to order more Boeing planes, and that’s not good for fuselage maker Spirit AeroSystems.
Federal Aviation Administration audit
In addition, an article in the New York Times claimed that Boeing failed 33 of 89 audits during a Federal Aviation Administration (FAA) examination, with Spirit failing seven of 13 audits.
The developments put further pressure on the two companies, and investors may have decided to bail on Spirit stock after buying into it following the news that Boeing was discussing “making Spirit AeroSystems a part of Boeing again.”
Boeing sold off the company that would become Spirit AeroSystems almost 20 years ago in a bid to outsource elements of its business. However, severe financial pressures in recent years (Spirit hasn’t generated any cash flow since the pandemic) mean that Boeing’s key supplier (whose CEO, Patrick Shanahan, is a Boeing veteran) needed to restructure agreements and receive a cash injection from Boeing to ensure fuselage deliveries.
Image source: Getty Images.
Where next for Spirit AeroSystems?
Looking at matters rationally, it makes sense for retail investors to sell out of such situations. My argument is that retail investors are competing with other investors who may better understand the state of negotiations between Boeing and Spirit AeroSystems.
That said, if you think Spirit AeroSystems is fundamentally undervalued and likely to muddle through its quality control issues alongside Boeing, and there’ll be no detrimental impact on Boeing orders after the negative publicity, then the stock will look like a good value.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.
