Unexpectedly Intriguing!
February 11, 2020

The stock prices of Boeing (NYSE: BA) and Spirit AeroSystems (NYSE: SPR) tend to be strangely synchronized. Which makes sense because Spirit AeroSystems is a major supplier to Boeing, but the last few months have seen the trajectories of the two companies' stock prices take significantly diverging paths, only to recouple once more.

Let's start by reviewing the path that each company's stock price has taken since mid-October 2018, shortly before the first crash of Boeing's 737-MAX commercial transport aircraft on 29 October 2018:

Boeing and Spirit AeroSystems' Stock Prices, 15 October 2018 through 7 February 2020

Both firms' stock prices peaked on 1 March 2019, with Boeing at $440.62 per share and Spirit AeroSystems at $99.35 per share. Alas, while you can get a sense that both companies' stock prices have generally risen and fallen together, the linear scale of the chart doesn't do justice to describing how closely synchronized both stock prices have been with respect to one another, while showing the data using a logarithmic scale wouldn't improve that situation.

But when we present show each company's stock price as a percentage of their 1 March 2019 peak values however, the synchronization between the two leaps out:

Boeing and Spirit AeroSystems' Stock Prices as Percent of 1 March 2019 Peak Value, 15 October 2018 through 7 February 2020

Here, we find that in percentage terms, both companies stock prices have generally held with within several percentage points of one another in the period from 15 October 2018 through 31 October 2019, but there have diverged significantly in the period since. The following list of news headlines corresponds with the boxed letters indicated on the chart and describes the reasons for the divergences:

Chart Item Headlines Comments
A Spirit AeroSystems profit falls short due to 787 Dreamliner charge Marking the end of the a period where BA and SPR stock prices were closely synchronized.
B Spirit AeroSystems to Acquire Select Assets of Bombardier Aerostructures and Aftermarket Services Business

How Spirit AeroSystems Stock Has Benefited From The Deal To Buy Bombardier's Aerostructures Business
Because SPR's acquisition will diversify the sources of its production revenue, insulating it from Boeing's continuing 737 MAX-related problems, SPR's stock price rose considerably higher than BA's during November 2019.
C Max Crisis Leads to Layoffs at Spirit AeroSystems But that new revenue source isn't going to be enough, because most of SPR's revenue and net earnings still tied to Boeing production, which isn't looking like it's going to recover quickly, which is why BA and SPR stock prices had recoupled prior to this point. SPR began to break lower after this point, because looming 737 MAX production cuts would hit it harder than BA.
D Boeing secures more than $12 billion in financing to help weather 737 Max crisis The loans boost both BA and SPR because they will provide some insulation from the loss of revenue from their stalled production lines.
E Spirit AeroSystems slashes quarterly dividend on 737 MAX troubles

Boeing's fraying 737 MAX suppliers see capacity crunch
The loans are too little, too late for SPR, which has no choice but to slash its dividend from 12 cents per share to 1 cent per share as the projected end of the 737 MAX production line stoppage slides further out to the right with no clear relief yet in sight.

The halt of 737 MAX component production at Spirit AeroSystems has caused SPR's stock price to fall several percentage points below BA's stock price, which is a new divergence. Since SPR has cut its dividend, the question now becomes "Will Boeing be following suit?"

Since the company has taken on billions of new debt, and has not yet determined when it might be able to finally resume new 737 MAX deliveries, pressure will build for Boeing to cut its dividend to preserve its operating cash flows. We suspect that reality may soon lead investors to bid down Boeing's stock price in anticipation of that change, which would re-synchronize BA's stock with SPR's.

On the other hand, if Boeing finally gets its operations in order and gets the FAA to buy into its recovery plans, the stock prices of both companies would benefit. It's all a question of timing for which of these scenarios might play out first.

Meanwhile, all of that is separate from the effect of China's coronavirus epidemic on both companies' supply chains and customer demand, which will also affect their potential recovery paths. Given the importance of aerospace production to the U.S. economy, Boeing's continuing 737 MAX problems look like they will be a source of drag for some time.

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