Boeing to Buy Spirit AeroSystems for $4.7 Billion. Stock Fallout.

In afternoon trading, Spirit Aero was up 3.7% at $34.07 and Boeing was up 2.4% at $186.46 a share. The

S&P 500

and

Nasdaq Composite

were up 0.2% and 0.6%, respectively.

“By reintegrating Spirit, we can fully align our commercial production systems, including our Safety and Quality Management Systems, and our workforce to the same priorities, incentives, and outcomes,” said Boeing CEO Dave Calhoun in a statement.

Boeing is paying roughly eight times Spirit’s 2019 earnings before interest, taxes, depreciation, and amortization, or Ebitda. That Ebitda was generated in a year before two fatal 737 MAX crashes and the Covid-19 pandemic.

Investors need to look at prior earnings because Spirit has been in turmoil and isn’t expected to generate positive Ebitda in 2024, according to FactSet. Ebitda is expected to recover to 2019 levels by 2026.

Also part of the deal is Boeing rival

Airbus
,

which Spirit also supplies.

Airbus will buy back some business back from Spirit and get $559 million from Spirit. It’s unusual to get both cash and a business that can lower operating costs in a deal.

Spirit and Airbus didn’t immediately respond to a request for comment breaking down the payment. The payment could reflect taking a money-losing business back.

“We think the initial reaction to this long-awaited deal will be that it is good for Spirit, good for Airbus, and less good for Boeing,” wrote Rob Stallard, an analyst with Vertical Research Partners.

On the upside for Boeing, Stallard added, owning Spirit will help it ramp up production of the 737 MAX.

Airbus stock was 3.2% in overseas trading.

Earnings for Spirit AeroSystem’s supplier are depressed in 2024 because Boeing isn’t building as many MAX jets as it hoped after an emergency door plug blowout of a 737 MAX 9 jet operated by

Alaska Air

on Jan. 5. The incident resulted in slower production and more oversight from aviation regulators.

Boeing will issue stock equivalent to roughly 4% of shares outstanding to complete the deal. Given earnings expectations for Spirit, that will reduce Boeing’s 2024 and 2025 earnings per share, estimates Jefferies analyst Sheila Kahyaoglu in a Monday report.

“Ultimately, there is the potential for far higher savings from Spirit AeroSystems, and it is hard not to acknowledge Spirit’s shortfalls in deliveries have led to inefficiencies and cost growth across Boeing’s business caused by uneven production rates,” added the analyst.

She likes the deal and rates Boeing stock Buy. Her price target is $270 a share.

The merger with Boeing will end Spirit’s decadeslong independence. It was a part of Boeing until 2005 when the plane maker sold it to a private-equity firm. A year later, Spirit sold shares to the public for $26 each.

Things didn’t work out that well for investors. The $37.25 price implies average annual gains of about 2% a year, excluding dividends. Spirit stock did trade above $100 a share in 2018.

Spirit AeroSystems stock closed at $32.87 on Friday, about 12% below the $37.25 level. The shares won’t likely trade to $37.25 on Monday. It depends partly on what Boeing stock does. There is also a variable exchange ratio tied to Boeing’s stock price. What’s more, investors don’t get $37.25 worth of Boeing stock immediately. The deal will take months to close. Investors always want to get paid to wait.

Coming into Monday trading, Spirit stock was up about 3% so far this year. Shares have been trading based on expectations for a Boeing acquisition for months. Boeing stock was down about 30% for the year while the

Dow Jones Industrial Average

was up about 4%.

Write to Al Root at allen.root@dowjones.com