Shares of Spirit AeroSystems reached a record high following the reaching of a tentative agreement with the Chicago, Illinois-based planemaker, Boeing. The tentative agreement was related to the pricing of aircraft parts for Boeing plane models that include the 787 Dreamliner.
Spirit AeroSystems indicated on Wednesday that it had taken a charge of $353 million for lowering the prices of parts of the Dreamliner in this year’s Q2 which ended in June. A year ago Spirit AeroSystems also made a similar deal with the European aircraft maker, Airbus for the A350 XWB plane which competes with the Dreamliner. Airbus and Boeing have been pushing their suppliers to reduce the prices of aircraft parts in order to stay competitive. This is in line with airline demands that they provide planes that are more capable and at lower costs.
Some of the aircraft parts that Boeing and Spirit AeroSystems have been in talks over include wing structures for 787-10 and 787-9 Dreamliners, fuselage sectors and components which connect the aircraft engines to the wings.
According to a filing with the federal regulator, pricing for the wide-body 787-8 Dreamliner had been established for a period running up to 2021. The pricing that was yet to be established was for the 787-10 and the 787-9 Dreamliners. According to Spirit AeroSystems the deal could close in this fiscal year’s third quarter and prices would be established for a period running up to 2022.
Open commercial issues
Also to be addressed are open commercial issues regarding various Boeing programs and this includes the 737 Max planes which have a single aisle. The chief executive officer of Spirit AeroSystems, Tom Gentile, said the uncertainly which has been existing for a long time between the two parties would be reduced by the deal. Additionally the deal would assist Spirit AeroSystems in meeting its cash flow goals for the long term.
“The deal with Boeing removes a cloud that has been hanging over Spirit for some time. Boeing has been menacing suppliers across the globe, and with such a large revenue exposure (80%), Spirit looked vulnerable,” said Vertical Research Partners’ analyst, Rob Stallard, in a client note.
For Boeing the deal will reduce business risk besides offering additional stability to the planemaker’s commercial aircraft unit. The deal will also be in line with Boeing’s program, ‘Partnering for Success’ which is an initiative aimed at cutting production costs in partnership with suppliers. The program was launched five years ago.