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Repercussions of Latest Issues for Spirit AeroSystems

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Alaska Airlines Grounds Its Fleet Of 65 Boeing 737 Max 9

Unsettling News Regarding Spirit AeroSystems

Once more, Spirit AeroSystems (NYSE:SPR) finds itself entangled in a significant quality concern involving the Boeing 737 series. An Alaska Airlines (ALK) 737 Max-9 experienced a door detachment, marking another unsettling incident.

Surprisingly, the situation did not result in casualties. However, the recent history of erroneous occurrences has put a dent in the reputation of the aviation industry. My previous article projected a bullish outlook for Spirit AeroSystems, but the recent turn of events has forced me to reassess my stance.

Since my last assessment in October, the stock has enjoyed a hearty rally, outperforming the S&P 500 by a substantial margin. However, the recent pre-market plunge of 18% has brought this surge to an abrupt halt. In this article, I intend to delve into the ramifications of the unfortunate incident, the company’s strategies for improvement, and the associated risk and rewards.

An Additional Setback for Spirit and Boeing

On a recent Friday, an Alaska Air 737 Max-9 was compelled to make an emergency landing after a door malfunction led to a rapid loss of cabin pressure. Although the passengers escaped unharmed, the incident has raised valid concerns over the safety of Boeing’s 737 Max series.

Following a similar pattern from the past, Boeing’s 737 Max model is once again under scrutiny after being emphatically endorsed as the safest aircraft worldwide. Despite the Federal Aviation Administration’s affirmation of its safety, the recent episode involving Alaska Airlines has prompted temporary grounding and inspections of specific Boeing 737 Max-9 aircraft.

Regrettably, the incident has sparked doubts about the integrity of the plane’s design and manufacturing, amplifying the existing production challenges and regulatory hitches for both Boeing and Spirit AeroSystems.

Even more disconcerting, the Alaska Air flight involved a recently delivered Boeing Max variant in October and has 19 planes on order. Consequently, the occurrence has reignited apprehensions about the aircraft’s structural soundness.

Moreover, the incident has triggered speculations regarding the future safety of the Boeing 737 Max series, with China – a major growth market for commercial aviation – contemplating a response that could substantially affect Boeing’s orders.

Impact on Ongoing Recovery

Although the extent of the impact is yet to unfold, it is expected that the recent incident will disrupt the progress Spirit AeroSystems had been striving to accomplish. The aftermath will likely necessitate additional endeavors for enhancing and ensuring the safety of the remaining Max-9 models.

In my October article, I alluded to the potential for significant growth for SPR if it could successfully address its operational issues and streamline its supply chains. However, the recent turn of events has derailed this optimistic outlook.

[…] if SPR can effectively address its operational issues and streamline its supply chains, it may see significant growth, potentially doubling in value over the next four to five years.

In November, the company’s quarterly earnings revealed improving demand in the industry, with an unprecedented surge in the aerospace sector and a substantial $42 billion backlog. Additionally, the company solidified ties with Boeing through a memorandum of agreement, resulting in a significant reversal of forward loss and a higher price on the 787 program.

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