Spirit Aerospace proves to be a good bet

Defense Market Report
Exclusively for InvestorIdeas.com
By James Smith
November 28, 2006

On 8 November in this column we detailed the upcoming initial public offering (IPO) of Spirit Aerospace.

Spirit AeroSystems is the world’s largest independent designer and manufacturer of aerostructures for commercial and military aircraft to Boeing and Airbus.

Until the recent IPO, Spirit Aerosystems Holdings was mostly owned by Canadian buyout firm Onex Corporation after the company was purchased from Boeing in 2005 for about US$1.2 billion.

If you thought this IPO was a good bet, we’re flying the same plane.

On the back of strong demand, 55.1 million shares of Spirit came to market at a price of US$26 per share – an eight per cent premium over the mid-range of its expected price of US$23 to US$25 per share. The 55.1 million shares on offer represented an increase of 3 million shares from what was initially contemplated.

Underwriters included Credit Suisse, Goldman Sachs and Morgan Stanley.

On top of that, underwriters have already exercised in full a greenshoe option to acquire an additional 8.26 million shares, bringing the total shares sold to 63.36 million shares.

Gross proceeds jfrom the offering tipped the scales at US$1.65 billion.

Of that amount, selling shareholders, including Onex, for expected gross proceeds of US$1.38 billion.

Following completion of the offering, Onex and its co-investors will continue to hold 64.2 million shares of Spirit AeroSystems' common stock valued at US$1.67 billion at the offering price.

At close of trading on the New York Stock Exchange on 27 November, shares were trading at US$28.39.

Boeing’s continuing ties with the Spirit Aerosystems are driving demand for shares in the company. As part of the acquisition agreement, Boeing pledged to source components from Spirit until May 2013.

Spirit provides fuselages, structures and wing components for every Boeing commercial aircraft in production except the B-717, including the new B-787 Dreamliner, which is outselling by a 416 to 202 margin, the proposed A350XWB from Airbus.

In the face of ongoing problems with the A350XWB, sources in the market expect to see a flurry of additional B-787 orders from carriers based outside the US before the end of the year.

Most of Boeing’s orders for the B-787 have come from buyers outside the US; only about 75 B-787s have been ordered from US carriers and lessors.

Pundits suggest that 2007 will be a turn-around year for struggling US carriers. With strong demand for the B-787 over the Airbus offering, chances are more than good that US carriers will follow suit.

For more Defense Market Report: click here

Disclaimer
James Smith is an independent columnist for this web site. James Smith may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. James Smith is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.