Boeing supplier Spirit Aero slides most in three years as cash burn tops $200 million

Spirit AeroSystems Holdings Inc. shares sank 27%, the most since 2012, after the aerospace manufacturer said its cash flow won’t fully recover next year as it grapples with the aftermath of a strike and the effects of inflation on some money-losing contracts. 

The company lowered its forecast for deliveries for Boeing Co.’s 737 by about 20 fuselages this year after a strike at its main campus in Kansas, Spirit said Wednesday in a statement. Costs tied to the work stoppage and a 737 vertical fin defect contributed to its negative free cash flow of $211 million during the period. 

Boeing’s biggest supplier expects to burn between $200 million and $250 million this year, about $100 million more than its previous forecast, executives said after the company reported a wider than expected second-quarter loss. Spirit is dealing with strains within its supply chain and faces mounting losses on the components its builds for Boeing’s 787 Dreamliner and Airbus SE’s A350 and A220 aircraft. 

The shares plunged as analysts zeroed in on those cost pressures and long-term contracts that appear unsustainable during an earnings call Tuesday.

“What spooked the market is the discussion of programs and profitability,” said George Ferguson, an analyst with Bloomberg Intelligence.

While demand soars for Boeing and Airbus jets, suppliers like Spirit are struggling with rising costs for goods and labor and contracts with the manufacturers that predate the recent inflationary spike and will need to be revisited later, Spirit’s Chief Executive Officer Tom Gentile said during a conference call. 

“It’s a broader industry issue,” he added. Boeing, Airbus and the US government “do have to recognize the environment has changed.”

The planemakers are propping up Spirit with cash infusions rather than addressing the root problem and easing contract terms that would affect their own profit margins, Ferguson said.

It’s going to take Spirit longer to return to generating cash, a concern that’s coming into sharper focus for analysts and investors with some $1.13 billion in debt coming due in 2025. 

“We struggle to see a pathway to consistent cashflow generation,” Robert Stallard of Vertical Research Partners, said of Spirit in a note to clients Wednesday. He has a hold rating on the stock.

On top of the $80 million a year in added labor costs tied to the new contract, Spirit faces heightened demands for quality that are going to drive its costs up further, particularly for the 787, according to Gentile. 

The company expects cash flow to turn positive in 2024 and 2025, allowing Spirit to pay down some debt, but it will need to refinance a portion of it when it comes due in 2025, Gentile said. 

Spirit said it is raising 737 output to a 42-jet monthly pace this month — four jets more than its previous guidance. The production pace could rise again in 2024, a move that would boost profits and cash, Gentile said.