Boeing is providing a $425 million advance payment to Spirit AeroSystems in an attempt to steady its embattled supplier in the short term.
Disclosed in a 23 April regulatory filing, the deal aims to “address Spirit’s higher levels of inventory and contract assets, lower operational cash flows, decrease in expected deliveries to Boeing and higher factory costs to maintain rate readiness”, Spirit says.
The Wichita-based company cites additional short-term financial stressors, including the need to move its product-quality verification process from Renton to Wichita, Boeing “no longer allowing travelled work on the 737 fuselage”, and the Federal Aviation’ Administration’s cap on Boeing’s 737 production.
Spirit is required to use the cash advance ”for the sole purpose of maintaining readiness to produce products… at the rates required by Boeing,” it says. The company will pay the amount back to Boeing in a series of instalments beginning on 12 June and ending 31 October.
Boeing is currently exploring the potential acquisition of Spirit to shore up a vital part of its supply chain, which would represent a reunion nearly 20 years after Boeing originally divested from Spirit in 2005. However, such a deal is complicated by Spirit’s working relationship with Airbus.
Brian West, Boeing’s chief financial officer, said that “discussions with Spirit are ongoing” during Boeing’s quarterly earnings call on 24 April.
”As with any large and complex deal, there are a number of terms and issues we need to work through including price, financing and other key items, and the best way of handling and potentially divesting certain work that Spirit does for other customers,” he says. “We believe in the strategic logic of the deal but we will take the time needed to get this thing right before we decide to enter into an agreement.”
West says “virtually all” of the $425 million it is advancing to Spirit will be repaid in the third quarter. “This will be accounted for as investing cash.”
Boeing’s 737 production rates will “stay sporadic” through the second quarter, says chief executive Dave Calhoun.
”The real pivot for us is the number of clean fuselages we’re getting out of Spirit with the new inspection protocol,” he says. “In the meantime, we’ve been working on all the issues that were already tracked in the pipeline that did not go through that inspection process.”
Boeing reports losing $355 million in the first quarter, largely as a result of the 737 production slowdown mandated by the Federal Aviation Administration in the aftermath of the 5 January door plug blow-out on Alaska flight 1282.
Spirit has yet to announce a date for its first quarter call with investors.
