On Friday, Seaport Global Securities maintained a Buy rating on Boeing shares (NYSE:BA) with a price target of $207. In light of the new CEO Kelly Ortberg's first week, the firm highlighted his focus on rebuilding relationships and trust with stakeholders. Ortberg, now based in Seattle closer to commercial production, has been conducting facility visits and meeting with key customers and union representatives.
Boeing has emphasized the importance of improving relations with the Federal Aviation Administration (FAA), which is crucial for increasing the production rates of its narrowbody aircraft above the current 38 per month. The company has fully implemented a 90-day plan submitted to the FAA, aimed at achieving stable performance with outlined Key Performance Indicators. Boeing reiterated its expectation to reach a production rate of 38 per month by year-end across three lines.
The aerospace giant acknowledged a shortfall in deliveries from Spirit AeroSystems (NYSE:SPR), with only 27 fuselages provided in the second quarter of 2024. Despite this, an inventory buffer of about 50 fuselages at SPR, currently producing at a rate of 31 per month, allows for a potential increase in production. Boeing noted no change to its target ramp to 38 per month by year-end and mentioned that LEAP engines are being closely monitored for rates above this level.
Regarding SPR, Boeing commented on the planned mid-2025 closure of Airbus' portion of the facility. There have been no major objections from SPR customers, and once acquired by Boeing, SPR is expected to operate as before its sale to Onex. Boeing stressed its commitment to maintaining an investment-grade balance sheet and supporting the supply chain reset, with several financing options available.
On the defense sector, Boeing did not comment on the potential impact of the Department of Justice settlement on future Defense programs. However, based on historical precedents, it is suggested that any suspension from bidding on new contracts is unlikely to be of long duration, and major contracts Boeing is competing for would likely be postponed until after any such suspension is lifted.
In other recent news, Spirit AeroSystems recently reported Q2 earnings that fell short of analyst expectations, with an adjusted loss of $2.73 per share and revenue of $1.5 billion. This underperformance was largely attributed to delivery delays as Spirit AeroSystems continues to refine its product verification process with Boeing. The company's backlog was approximately $48 billion at the end of Q2.
In addition, Spirit AeroSystems is in the process of finalizing its proposed merger with Boeing, a significant development for the company. However, the company is also contending with ongoing quality and safety issues, leading to a halt in providing financial guidance for the time being.
KeyBanc Capital Markets has maintained its Sector Weight rating on Spirit AeroSystems, viewing the current risk/reward balance as neutral. The firm notes that while the Boeing acquisition could offer potential benefits, significant changes to Spirit AeroSystems' operational and financial outlook are likely to be medium-term.
In a separate development, the U.S. National Transportation Safety Board (NTSB) has initiated a hearing to investigate an incident involving an Alaska Airlines Boeing 737 MAX 9 aircraft, with witnesses from Boeing, Spirit AeroSystems, and the Federal Aviation Administration (FAA) set to testify. This follows Boeing's recent agreement to reacquire Spirit AeroSystems for $4.7 billion in stock.
Lastly, significant workforce reductions are taking place across various sectors in both the U.S. and Canada, including Spirit AeroSystems, as part of restructuring efforts in response to economic conditions.
InvestingPro Insights
As Boeing continues to navigate its production and supply chain challenges, insights into key suppliers like Spirit AeroSystems (NYSE:SPR) are crucial for investors to understand the broader aerospace sector dynamics. InvestingPro data highlights SPR's market cap at approximately $4.1 billion, with a notable revenue growth of 19.53% over the last twelve months as of Q2 2024. However, this financial strength is juxtaposed with significant challenges, as reflected in a negative gross profit margin of -6.76% and an operating income margin of -12.82% for the same period.
InvestingPro Tips for SPR suggest caution, highlighting that the company operates with a significant debt burden and may struggle with interest payments, evidenced by a negative P/E ratio of -3.38. The tips also reveal that analysts have revised their earnings downwards for the upcoming period, and net income is expected to drop this year. For potential investors, these factors underscore the importance of monitoring SPR's financial health, especially given its role in Boeing's supply chain. For a deeper dive into SPR's financials and additional tips, there are 13 more tips available on InvestingPro's platform.
Understanding these metrics and tips can provide investors with a more comprehensive view of the challenges and opportunities Boeing faces as it works to stabilize production and maintain its investment-grade balance sheet. Staying informed on suppliers like SPR is essential, as their performance directly impacts Boeing's ability to meet production targets and delivery commitments.
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