In a move that should surprise no one, Boeing has reached an agreement to buy back Spirit AeroSystems, one of its key parts suppliers. This had to happen, though only time will tell if this actually improves Boeing’s situation…
In this post:
Boeing buys back key supplier, 19 years after sale
Boeing is acquiring Spirit AeroSystems in a deal that has an enterprise value of $8.3 billion. This consists of two components — Boeing is acquiring Spirit’s outstanding stock for $4.7 billion, and is also taking over around $3.6 billion of Spirit’s debt.
Boeing is acquiring Spirit shares for $37.25, a roughly 30% premium to Spirit’s closing stock price of $28.60 on February 29, 2024, the last day before both parties issued press releases confirming that discussions were happening between the parties about a possible deal.
For those not familiar with Spirit AeroSystems, the Wichita-based company produces key components of the fuselages of Boeing 737 and Boeing 787 aircraft. Spirit used to be part of Boeing until 2005, when it was spun off. As you might expect, that’s something that Boeing ended up regretting. The sale was clearly motivated by short term profits and stock gains rather than a long term quality focus.
Boeing has of course been in the news for all of its aircraft quality issues, and outsourcing so many aircraft components to a third party isn’t great for managing quality. Some of the problems Boeing has faced have been due to quality issues directly with the aircraft manufacturer, while others have been due to issues at Spirit.
Furthermore, while Boeing is in a bad financial situation, the company is too big to fail, and also has a huge defense business. Meanwhile Spirit has also been in a terrible financial situation, but doesn’t have quite the safety net that Boeing does. However, Boeing can’t afford for Spirit to go out of business, or undergo a major restructuring.
Given the state that Spirit is in, Boeing acquiring the company was basically the only option. Note that Spirit also produces parts for some Airbus aircraft, and a separate deal is being worked out with Airbus to acquire certain Spirit assets that serve Airbus programs.
How Boeing’s CEO describes Spirit AeroSystems acquisition
Boeing CEO Dave Calhoun has sent a message to employees about the acquisition of Spirit AeroSystems. Here’s the note, which I figure is worth sharing:
I’m pleased to announce that we’ve reached a definitive agreement to acquire Spirit AeroSystems. We believe this deal is in the best interest of the flying public, our airline customers, the employees of Spirit and Boeing, and the country more broadly.
By once again combining our companies, 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 – centered on safety and quality. This is an opportunity to bring back critical airplane manufacturing work on Boeing airplanes into our factories – where Boeing and Spirit world-class engineers and mechanics can work seamlessly together, focused on a common mission to build safe and quality airplanes for our customers.
Among the many actions we’re taking as a company, this is one of the most significant in demonstrating our unwavering commitment to strengthen quality and make certain that Boeing is the company the world needs it to be.
Our acquisition of Spirit will include substantially all Boeing-related commercial operations, as well as additional commercial, defense and aftermarket operations. As part of the transaction, Boeing will work with Spirit to ensure the continuity of operations supporting Spirit’s customers and programs we acquire, including working with the U.S. Department of Defense and Spirit defense customers regarding defense and security missions.
As we work to secure the necessary regulatory approvals, Boeing and Spirit will remain independent companies, but we will continue to work collaboratively with Spirit and its leadership to strengthen the quality and safety of Boeing’s commercial airplanes.
The transaction is expected to close mid-2025 and is subject to the sale of the Spirit operations related to certain Airbus commercial work packages and the satisfaction of customary closing conditions, including regulatory and Spirit shareholder approvals.
As I’ve said before, we will be measured one airplane at a time. This agreement marks an important step in demonstrating Boeing’s commitment to aviation safety.
Thank you for your hard work and dedication.
Bottom line
Boeing has reached a deal to acquire Spirit AeroSystems, the company that produces the fuselage of the 737 and 787. Boeing owned this business back in the day, but spun it off nearly two decades ago, in what was obviously a bad decision. I doubt we’ll see any changes as a result of this overnight, though hopefully this is part of Boeing’s long term commitment to improving quality.
What do you make of Boeing acquiring Spirit AeroSystems?
I’m surprised you haven’t written about the Ryanair 737 MAX incident yet
What Ryanair 737 MAX incident?
what's the over/under on months before Boeing lays off nearly everybody from Spirit and keeps the IP
Taking over a supplier doesn’t change a single bit of quality. What has Boeing done in the past? Were all the agreed specifications met? It was Boeings job to insure that only parts that meet the specifications are delivered. And they did a terrible job with that…
The problem for Boeing is Spirit is the only vendor capable of delivering the fuselage. Boeing could either accept the poorly done work or do without the main component of their product. And if Boeing is going to have to direct every aspect of Spirits work because their management is fundamentally incapable of delivering a quality product then it’s easier to just buy it and run it yourself.
Boeing could’ve also run to PremiumAerotec instead…
Rather than selling to Airbus the factory in Great Britain (can't remember if it was in N Ireland or Wales) that makes the A220 fuselage, Boeing should buy the A220 line from Airbus and use it to replace the B737.
The Belfast Spirit Aerosystems factory produces the wings for the A220, not the fuselage. That factory also currently loses money, so it isn't overly lucrative for Airbus to spend much for it. In fact, Airbus will be doing Boeing a favor financially by taking over the factory. Additionally, Airbus has yet to make a profit from the A220 program. I highly doubt Boeing has any intent to buy the A220 program at this time.
What goes around, comes around!!
As mentioned in the press release, Airbus and EU and UK have skin in this game and will impede the sale, if necessary, to assure that Airbus operations are not interrupted.
IIRC, the wing assembly for the A220 is in Northern Ireland. Too many well paying jobs in an economically challenged area. I assure you, UK Prime Minister Rishi Sunak and his government are closely watching the deal.
By impeding the sale, you mean Airbus agreeing to buy the wing assembly plant for just under $600 million… Yeah.
Actually Airbus is paying 1$ and getting 559Mln$ from Spirit, so they are getting paid to buy...
Found out that Spirit AeroSystems is also involved in some A350 fuselage and A220 pylon work with facilities in both North America and Europe.
As Kevin noted, Airbus will get all the Airbus operations from Spirit. However, Airbus still wants to hand this work out to other loyal contractors so it can focus on final assembly.
IIRC, Airbus is still losing money on each A220. However, the program acts as a counter to...
Found out that Spirit AeroSystems is also involved in some A350 fuselage and A220 pylon work with facilities in both North America and Europe.
As Kevin noted, Airbus will get all the Airbus operations from Spirit. However, Airbus still wants to hand this work out to other loyal contractors so it can focus on final assembly.
IIRC, Airbus is still losing money on each A220. However, the program acts as a counter to the MAX 7. It may also hurt A320NEO sales, but the money still stays with Airbus which is a partial victor.