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Spirit Aero's shares sink as pricing talks with Boeing drag on
May 3, 2017 / 11:53 AM / 7 months ago

Spirit Aero's shares sink as pricing talks with Boeing drag on

(Reuters) - Aircraft parts maker Spirit AeroSystems Holdings Inc’s (SPR.N) shares slumped on Wednesday after the company said it was taking “longer than expected” to agree on prices with its biggest customer, Boeing Co (BA.N), which analysts said may create uncertainty over its cash flow growth.

Analysts said Spirit Aero’s tone regarding the negotiations with Boeing were a deviation from its prior remarks, which had indicated that talks were progressing constructively.

Shares of Wichita, Kansas-based Spirit Aero fell as much as 9 percent to $53.06.

Boeing and European rival Airbus SE (AIR.PA) have been pressing suppliers to cut prices on aircraft parts, as they seek to stay competitive amid burgeoning demand from airlines for more capable planes at lower prices.

Spirit Aero’s talks with Boeing relate to prices for parts including sections of fuselages, aerodynamic components surrounding engines and wing framework for the planemaker’s best-selling narrow-body 737 aircraft and the wide-body 787-9 and -10 Dreamliners.

“There’s still a gap between us really on the 737 side as well as the 787 side. We’re working very hard to close those,” Spirit Aero Chief Executive Thomas Gentile said on a post-earnings call with analysts.

The company, which gets more than 80 percent of its revenue from Boeing, has since last year sold aircraft parts to the planemaker on an interim supply pact, after a previous 10-year agreement expired in 2015.

“It’s an overhang until this is settled. You don’t know how much cash (Spirit Aero is) going to get, and whether they have to give money back to Boeing ... it clearly clouds the visibility somewhat,” Cowen & Co analyst Cai Von Rumohr said.

Last year, Spirit Aero signed a fresh supply deal with Airbus SE (AIR.PA) for the wide-body A350 XWB aircraft, a competitor to Boeing’s 787. However, Spirit Aero took a non-cash charge of $135.7 million related to that contract.

Gentile said he was satisfied with the current interim pricing agreement with Boeing, but also added “it would be better to get to a final commercial settlement and remove some of the uncertainty that surrounded it.”

While Spirit Aero on Wednesday backed its financial forecasts for the year, some analysts also raised concerns about the company’s growth prospects.

“We see risk to future periods if negotiations break down or if Boeing is able to exert leverage over (Spirit Aero) as it has done with other suppliers,” SunTrust Robinson Humphrey analyst Michael Ciarmoli said in a client note.

Reporting by Ankit Ajmera in Bengaluru; Editing by Shounak Dasgupta and Sai Sachin Ravikumar

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