Here's what Boeing's deal to buy Spirit AeroSystems means for the jet maker

By Claudia Assis

The aerospace giant's stock rose and spreads on its outstanding bonds tightened on hopes that the deal will help improve production

Boeing Co.'s deal to buy Spirit AeroSystems Holdings Inc. took some pressure off the jet maker's bonds and boosted the stock on Monday, even as the possibility of a debt downgrade remains.

Boeing (BA) said earlier Monday that it has agreed to buy Spirit (SPR) in an all-stock deal worth around $4.7 billion - nearly 20 years after it spun off the assets that became Spirit AeroSystems - as it looks to improve production quality and make more key components in-house. Boeing disclosed that it was in talks with Spirit in March.

Boeing's stock was up 2.5% on Monday afternoon and spreads on its outstanding bonds tightened. Boeing's debt ratings are currently at the lowest rung of investment grade with a negative outlook from all three major credit-ratings agencies, meaning they could be downgraded later this year or in early 2025.

Boeing is to assume about $4 billion in Spirit debt, increasing its debt load to about $60 billion, CreditSights analyst Matt Woodruff said. Boeing ended the first quarter with around $47 billion in debt and issued $10 billion in bonds in April in a much-needed liquidity boost.

The agreement to buy Spirit was "a deal that they needed to do," Woodruff said. "Investors today are relieved that at least they are using equity to acquire the company," and that a potential deal with the Justice Department over its fatal 737 Max crashes in 2018 and 2019 doesn't look onerous for the company, he said.

Related: Feds want Boeing to plead guilty to fraud over fatal 737 Max crashes, lawyers say

Fitch Ratings on Monday said the deal "has no near-term rating impact," and that it will be "operationally beneficial to Boeing, as it will allow the company to better plan and control the pacing of future 737 Max production."

Fitch is projecting Boeing's free cash flow to be "modestly negative" this year, and that it will return to low-single-digit positive billion dollars in 2025 and mid-single-digit billions in 2026.

Monday's deal is "an opportunity to right past strategic missteps," BofA Securities analyst Ronald Epstein said in a note.

"In our view, Boeing spinning out Spirit in 2005 should have never happened and the decision haunted both companies time and time again," Epstein said.

With Spirit back, Boeing is likely to "exercise greater quality control, increase oversight on production and provide a more stable future for the company," which are critical moves to ensure smoother production for the 737 and safeguard its 787 ramp-up, he said.

Boeing's bonds saw net buying on Monday as spreads on its longer-maturity bonds tightened by 5 to 7 basis points, while its bonds that mature in 2034 were flat, as the following charts from data-solutions provider BondCliQ Media Services show.

Net client flows show better selling of intermediate bonds and better net buying of longer bonds.

Boeing has almost $8 billion of bonds that will come due in 2026, as the following chart shows.

Shares of Boeing have lost more than 28% so far this year, contrasting with an advance of nearly 15% for the S&P 500 index SPX.

-Claudia Assis

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07-01-24 1417ET

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