Boeing confirms it has interest in acquiring 737 fuselage maker Spirit AeroSystems, a move some industry experts think could help the US aircraft manufacturer finally address troubles at its largest supplier.
But other observers – specifically financial analysts – warn an acquisition would heap another pile of problems onto Boeing’s already full plate, saying Spirit will fair best under a recovery plan led by new chief executive Pat Shanahan, a respected former Boeing leader.
“We have been working closely with Spirit AeroSystems and its leadership to strengthen the quality of the commercial airplanes that we build together,” Boeing says on 1 March. ”We confirm that our collaboration has resulted in preliminary discussions about making Spirit AeroSystems a part of Boeing again.”
The confirmation came after The Wall Street Journal reported earlier in the day that Boeing was discussing such a deal with Spirit, the Wichita company that supplies Boeing with 737 fuselages and other components.
Such a move would mark a major course change for Boeing, which owned the fuselage operation until divesting it in 2005 amid a broader push to outsource production. An acquisition would also have wide-ranging implications for Airbus, which relies on Spirit to produce composite structures for A220s and A350s.
“We believe that the reintegration of Boeing and Spirit AeroSystems’ manufacturing operations would further strengthen aviation safety, improve quality and serve the interests of our customers, employees and shareholders,” Boeing adds. ”Although there can be no assurance that we will be able to reach an agreement, we are committed to finding ways to continue to improve the safety and quality of the airplanes.”
Aerospace analyst Michel Merluzeau with consultancy AIR thinks Boeing, with direct control of Spirit, could better stabilise and oversee 737 fuselage production and bring its resources to bear on helping modernise the Wichita operation.
“It seems logical from a Boeing perspective, but it could really throw a wrench into Airbus’s planning and execution,” he says.
Spirit also confirms it is “currently engaged in” the discussions, adding, ”No assurances can be given that a definitive agreement will be entered into”.
“This is the first thing current management has done that I agree with,” Richard Aboulafia, analyst with AeroDynamic Advisory, says of Boeing’s move.
He thinks Boeing’s troubles result partly from prioritising short-term financial results and shareholder returns over new-product development, a focus that led Boeing in recent decades to outsource more work and institute Partnering for Success, a programme to wring price cuts from suppliers. Taking Spirit back would be reflect a shift away from that course, Aboulafia says.
Others think Boeing should not snap up Spirit.
“We do not believe acquiring [Spirit] represents a near-term fix for [Boeing] and the Max issues,” RBC Capital Markets financial analyst Ken Herbert says in a 1 March report. “We also believe current [Spirit] CEO Shanahan represents as good of a near-term solution for [Boeing] as it can ask for. Every indication has been that Shanahan has been working very closely with [Boeing] to address current issues with the Max.”
Boeing and Spirit have suffered a rash of recent quality and production problems. Both companies, like other aerospace firms, slowed production and cut workers during the 20-month 737 Max grounding and the ensuring Covid-19 pandemic. They have since struggled to ramp back up amid shortages of skilled labour and other troubles.
Several quality lapses in the last year came from Spirit, including an issue involving mis-drilled holes in 737 Max aft-pressure bulkheads.
On 5 January a door plug blew out of an Alaska Airlines 737 Max 9 during a flight, prompting the Federal Aviation Administration to launch audits of Boeing and Spirit. Investigators have suggested Boeing failing to secure bolts to the plug.
Meanwhile, Spirit has stumbled financially, losing more than $500 million in both 2021 and 2022, and another $633 million in 2023. It relies heavily on Boeing, which accounted for 64% of its 2023 revenue. The 737 programme alone generated 45% of Spirit’s revenue last year.
Several analysts suggest the FAA might be pressuring Boeing to acquire and mend Spirit. The agency did not respond to a request for comment.
RBC’s Herbert thinks Boeing could likely buy Spirit for relatively cheap, noting the company’s market capitalisation has been about $3.3 billion. “We see Boeing’s balance sheet as being largely un-impacted by an acquisition,” he says.
Last year, Spirit’s longtime CEO Tom Gentile left abruptly, replaced by Shanahan, an experienced supply chain executive who worked more than three decades at Boeing. Shanahan set out to turn Spirit around, finalising a deal under which Boeing agreed to provide Spirit $100 million to help fund 737 and 787 production rate increases. Shanahan is also working to secure new terms with Airbus. By all accounts, Boeing is working closer than ever with Spirit under Shanahan.
While RBC’s Herbert thinks Boeing could realise some long-term benefits by acquiring Spirit – such as supply chain stability, he worries doing so “would add to [Boeing’s] near-term executive issues.”
“Would acquiring Spirit solve the quality issues… In short, our answer is no.”
“There is a price for everything, but buying a troubled supplier likely does not generate the shareholder returns and de-leveraging investors want,” adds a 1 March report from financial firm Jefferies.
AIRBUS IMPACT
Airbus has significant interest in whatever happens because Spirit produces A350 centre fuselage sections in Wichita and A220 composite wings in Belfast, Northern Ireland.
Both those programmes have been operating deep in the red, with Spirit last year logging more than $200 million in forward losses against the work.
Former CEO Gentile said Spirit’s composite manufacturing work proved more labour-intensive and expensive than anticipated.
The Wall Street Journal report says Spirit is exploring the sale of its Irish operations as part of selling the larger company to Boeing. Analysts say Spirit would need to divest all the Airbus work, and that Airbus would be the logical company to acquire that work. After all, Airbus has recently reintegrated, into its own operation, major aircraft structures providers through its Airbus Atlantic entity.
“Pretty obviously… [a Boeing acquisition] needs to be done with some coordination with Airbus,” says Aboulafia.
Airbus declines to comment.
