Spirit AeroSystems Seek Relief From Lenders, Stock Plunges Over 13%

Shares of Spirit AeroSystems Holdings Inc, the world’s largest first-tier aerostructures manufacturer, plunged over 13% overnight after it announced that it is seeking concessions from lenders on repayment timelines and financial covenants as they worry about a sharp erosion in earnings after Boeing directed to cut production amid coronavirus pandemic.

The coronavirus related travel restrictions and grounding of passenger jets have led to a collapse in air travel demand.

Boeing Company, an American multinational corporation that designs, manufactures, and sells airplanes, rotorcraft, rockets, satellites, telecommunications equipment, and missiles worldwide, said that it has asked its biggest part supplier to substantially lower 737 Max production this year. However, Spirit cautioned that it may have an adverse impact on the financial condition of the company.

The company which manufactures several key pieces of Boeing, including the fuselage of the 737, portions of the 787 fuselage, and the cockpit section of the fuselage of nearly all of its airliners, said that it anticipates to hand over only around 70 shipsets, down from over 120 planned previously.

“Given the substantial production plan reduction, Spirit could breach the financial covenants under its credit agreement in the fourth quarter of 2020 without an amendment or waiver,” the company said in the SEC filing.

The COVID-19 pandemic along with the B737 MAX grounding presents significant challenges to Spirit’s liquidity. The COVID-19 pandemic presents the potential for impairment charges and increased bad debt expense provisions, which could negatively impact the company’s results, the company added.

“Our business depends, in large part, on sales of components for a single aircraft program, the B737 MAX. Further suspensions or reductions in our production rates for the B737 MAX as well as our other programs, as a result of the COVID-19 pandemic, may have a material adverse impact on our business, financial condition, results of operations, and cash flows.”

Spirit AeroSystems outlook

On Tuesday, Spirit AeroSystems shares closed 13.34% down at $23.58. Ten analysts forecast the average price in 12 months at $24.00 with a high of $40.00 and a low of $14.00. The average price target represents a 1.78% increase from the last price of $23.58, according to Tipranks.

However, it is good to buy at the current level for the short-term as 50-day Moving Average and 20-50-day MACD Oscillator signals a buying opportunity. On June 11, Jefferies raised the target price to $30 from $21. However, UBS cuts price target to $19 from $21, Suntrust Robinson cuts to $14 from $16 and Cowen and Company cut to $21 from $25 in May.