Spirit AeroSystems Holdings Inc. rose the most in over one and a half years of trading yesterday, climbing $1.85 or 9.1% before falling back to 20.44 at the close after the aircraft parts manufacturer reached an agreement with Boeing Co. for claims related to three years of delays on the new 787-800. In 2010 as a whole the shares moved up only 4.85 in total.
Spirit has reached an agreement with Boeing “that’s fair for both companies” to cover costs for engineering and configuration changes made to the 787 since 2005. The deal covers everything prior to December, meaning any additional changes would be open to further negotiation.
“There’s no forward loss on the program, and the relationship with Boeing has probably been strengthened,” Howard Rubel, an analyst in New York with Jefferies & Co., said in a telephone interview. “Spirit’s going to get rewarded for its increased productivity initiatives. I’m encouraged by this.”
The deal has buoyed investor confidence after many thought that Spirit would have to record a forward loss for the 787 program because of the extra expenses. It is believed that the total value of the settlement is probably in the hundreds of millions, consisting of a cash payment in Q4 and a change in the pricing curve.
The problems all stem from the fact that contracts with suppliers state that on the main that they wouldn’t get paid until the planes were delivered to customers.
Boeing will announce confirmation of further delays on the 26th January 2011.
The new agreement with Boeing “reflects current program financial realities and reinforces a partnership,” Phil Anderson, Spirit’s chief financial officer, said in a statement yesterday.
We await further news of agreements with other suppliers of the 787 over the coming weeks. Shares of most supplier companies such as Umeco plc are depressed and investors are desperate for some good news on the program, as too are airlines. With fuel prices heading for $100 a barrel the 787 is badly needed.