Long-troubled Spirit AeroSystems Holdings (NYSE: SPR) is in talks to be reacquired by its onetime parent. Investors are excited about the possibilities, which sent Spirit shares up 26.1% in March, according to data provided by S&P Global Market Intelligence.
Reversing course after a difficult journey
Spirit makes aircraft fuselages and other components for Boeing(NYSE: BA) and Airbus, including the frames for Boeing's mainstay 737 line. The company was spun out of Boeing in 2005 at a time when Boeing was focused on streamlining its manufacturing footprint, but little has gone right for either company in the years since.
Boeing's issues with the 737 MAX have derailed growth plans for both it and Spirit. And Spirit's continued reliance on its former parent -- Boeing is responsible for about two-thirds of Spirit revenue -- has made it a poor investment. Some of Boeing's quality problems have also been blamed on Spirit.
The solution could be a reunion. Spirit shares soared early in March on reports that the company has hired bankers to explore strategic options and has had preliminary talks with Boeing about a deal. Those reports were later confirmed, leaving investors hopeful that a deal could be done in the months to come.
Is Spirit a buy on the deal talk?
The dynamics of these negotiations are atypical, as neither the potential buyer nor the potential seller is in a position of strength. Boeing is facing significant criticism from regulators and customers over its quality issues and a potential deal for Spirit is seen as a sign the company is serious about getting its production line in order. Spirit faces significant headwinds should it go it alone.
Any potential deal would likely require Spirit, or Boeing acting on Spirit's behalf, to find a buyer for the Airbus business. It appears possible that Airbus could acquire those units, based mostly in Northern Ireland, but the aerospace giant likely has little desire to do so in a way advantageous to Boeing.
Spirit and Boeing also have to figure out how to account for loans and payment advances Boeing has made to keep Spirit afloat while Boeing production lines have operated well below capacity. And Boeing is negotiating while also going through a CEO transition, further complicating talks and strategic planning.
The most likely outcome is for the two sides to figure out a deal, if only because neither side would be in a good position absent the other. But Boeing, with billions in added debt since the pandemic and a cloudy future, cannot afford to overpay. If all goes to plan, long-suffering Spirit shareholders might soon be put out of their misery, but there is no reason for new investors to jump in now in hopes of a massive premium if the deal is eventually consummated.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
