Why Boeing-Spirit AeroSystems deal is ‘the right move,’ analyst says

Boeing (BA) has been in talks to acquire Spirit AeroSystems (SPR), a move aimed at increasing oversight of the company’s manufacturing processes in the wake of a January safety incident. Stifel Research Analyst Bert Subin joins Yahoo Finance Live to discuss why he believes this potential acquisition is “the right move.”

Subin characterizes the potential acquisition as a “reabsorption of a supplier,” noting that it is unlikely to raise significant antitrust concerns with the Federal Trade Commission (FTC).

The analyst further acknowledges the presence of a “risk premium” built into Boeing’s stock due to the uncertainty surrounding its production processes. He suggests that the acquisition of Spirit AeroSystems could help restore investor confidence in the stock.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor’s note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: Shares of Boeing down over 20% roughly since the start of 2024. The downward trend mainly coming after the incident in early January, where a side panel was blown out mid-air on an Alaskan Airlines flight.

The incident leading Boeing to explore reacquiring its supplier, Spirit AeroSystems, as the company works to improve the safety of its 737 MAX aircraft. Dubai carrier, Emirates, now voicing its support of Boeing’s potential takeover of Spirit AeroSystems.

Here with more on what’s ahead for Boeing, we’ve got Stifel analyst Bert Subin. Bert, great to have you here with us this morning. First and foremost, the likelihood that we see finalization of a Boeing-Spirit deal.

BERT SUBIN: Well, first, thanks for having me back on the program. I think it’s reasonably likely. I think there’s been some questions about whether the DOG, FTC would– DOJ or FTC would hold it up.

We couldn’t find any examples of vertical integration really being a target for the DOJ. I think if you look at what they’ve gone after, it’s been more anti-competitive. This would be essentially the reabsorption of a supplier by Boeing. You would get likely, at the same time, a divestiture of the Airbus assets.

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And so as far as being allowed, I think it would ultimately pass through antitrust scrutiny. In terms of whether Boeing would do it, I think they’ve found this to be the path forward that makes the most sense, just because it’s become increasingly difficult to oversee its supply chain. And Spirit is a huge part of that where they’ve had some quality escapes over the last couple of years.

And so I think this is an actionable right move for Boeing to get control over things, to get the FAA more comfortable with this production, and to get its customers, you mentioned, Tim Clark at Emirates, more comfortable with the direction they’re going in.

So I do, ultimately, think you have a greater than 50% chance of Boeing and Spirit, ultimately, merging later this year.

SEANA SMITH: Bert, do you see this being a catalyst for the stock in the long run?

BERT SUBIN: I think it’s the first domino on the path to normalization. So when the January 5 accident happened in Alaska, the question was, reputationally, what’s this going to mean? Are you going to see a lot of order cancellations? We haven’t seen that yet. And I think part of that is, where do you go?

Airbus is sold out for the next decade. And so it’s proven difficult to get slots there. Then there was a question of what happens to production. Right now, they’re frozen at 38 per month on the MAX. And it could certainly be worse than that. And so it’s going to be maybe a few months until they get to the next leg.

But if they re-acquire Spirit, if they get greater control over the supply chain, then I think they’ll get the blessing by the FAA over time to get those numbers back up. And so, ultimately, I think, is this a catalyst? It’s hard to say. As soon as this deal, should it happen, we’re closed, the stock’s going to pop, I don’t foresee that.

But I think you’ll see a gradual improvement, because really, the number one thing we’ve been looking at Boeing is there’s this risk premium that’s built into the stock. People are essentially embedding in the fact that they don’t know what could happen next. Could there be another incident? Could there be something on the quality side? How do you price that in?

So I think this would help lower that risk premium, as we go down the line.