Aug 3 (Reuters) – Spirit AeroSystems (SPR.N) shares continued their downward spiral on Thursday, dropping another 4% a day after the aerospace manufacturer disclosed major costs associated with a recent strike and new labor agreement.
Shares plunged 27% on Wednesday as executives detailed a laundry list of problems. The manufacturer of major components for all Boeing jetliners, reported a faster-than-expected cash burn rate and $105 million in losses on Boeing (BA.N) and Airbus (AIR.PA) aircraft production during the second quarter.
Management said continued supply chain instability, inflation and rising labor costs would continue to hurt the bottom line. Spirit said it burned through $211 million of cash in the second quarter, adding that cash flow will not recover until the 2024-2025 time period.
The stock has lost about a third of its value in two days. On Thursday, shares were last down 4.3% to $21.86 a share.
The company also said it may look to refinance its debt due in 2025. Spirit’s bonds are junk-rated by major ratings agencies.
“We believe the lack of core cash generation will not enable management to delever as fast as we had previously anticipated,” said Michael Ciarmoli, analyst at Truist Securities, which downgraded shares to “hold” from “buy” on Thursday.
Spirit occupies a unique position in the aerospace industry. The company was spun off from Boeing in 2005, and continues to make major portions of all Boeing jetliners, including the entire 737 fuselage. In recent years it has expanded its customer base to include Airbus and as a supplier on defense contracts.
“There is really no alternative supplier for much of what it does if the OEMs (original equipment manufacturers) do not want to take on the work themselves,” said J.P. Morgan analyst Seth Seifman in a note to investors.
Analysts questioned whether Spirit would have to renegotiate labor contracts with Boeing and Airbus. Seifman said it is unclear what Boeing will do to help Spirit improve its financial health. He said Airbus has an in-house aerostructures capability and is less reliant on Spirit.
Ken Herbert, an analyst with RBC Capital Markets, said that Spirit is unlikely to see near-term pricing relief, given supply chain pressures and its fixed-price contracts.
“We instead believe Boeing and Airbus are likely to continue to contribute customer advances, allowing Spirit to benefit only as production rates improve,” he said.
Spirit’s ability to generate cash could be a “key factor” in whether it is able to achieve favorable terms as it seeks to refinance, Cowen analyst Cai Von Rumohr wrote. The company has $1.2 billion in outstanding bonds set to mature in April 2025, according to Refinitiv Eikon.
Reporting by Valerie Insinna;
Editing by Marguerita Choy
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