IN-DEPTH: Boeing To Acquire Troubled Supplier Spirit AeroSystems, With Airbus Parts Split Off

July 1, 2024
Two decades after Boeing put its big aircraft subassembly plants in Wichita, Kansas, and Tulsa, Oklahoma, up for sale and created what became Spirit AeroSystems, the company announced late Sunday it has reached an agreement to acquire those major units of Spirit and bring that work back in-house

Two decades after Boeing put its big aircraft subassembly plants in Wichita, Kansas, and Tulsa, Oklahoma, up for sale and created what became Spirit AeroSystems, the company announced late Sunday it has reached an agreement to acquire those major units of Spirit and bring that work back in-house

In a note to Boeing employees Sunday night, CEO Dave Calhoun said, “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.”

“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,” he added.

Boeing said the merger is an all-stock transaction at an equity value of about $4.7 billion, or $37.25 per share.

Boeing will also take on Spirit’s last reported net debt of $3.6 billion, so the total transaction value is about $8.3 billion.

Spirit shareholders will receive between 0.25 and 0.18 Boeing shares for each of their Spirit shares, depending on the Boeing stock price when the deal closes.

Since Boeing sold off the business, Spirit diversified to build parts for European rival Airbus and other aircraft makers. So its sale required complex three-party negotiations that will break Spirit up.

Last year, 70% of Spirit’s revenue came from Boeing and 23% from Airbus.

Airbus has simultaneously entered a binding agreement to potentially acquire the units of Spirit in the U.S., France and Morocco that make major sections for its A350 and A220 aircraft. The Boeing acquisition is conditioned on the Airbus acquisition being finalized.

But Airbus won’t pay anything to acquire its parts of Spirit.

The European jet-maker “will be compensated by payment of $559 million from Spirit AeroSystems, for a nominal consideration of $1.00,” subject to adjustments when finalized.

This makes plain that the deal was engineered to suit Boeing’s needs, with Airbus ready to go along provided it was paid to do so.

For Spirit, the facilities making A350 and A220 parts have been bleeding cash due to low pricing from Airbus, so it makes sense to pay to get rid of them.

The deal will have to undergo regulatory review. Boeing said it is expected to close in mid-2025.

Boeing confirmed in early March its intention to reacquire Spirit in an effort to ensure the continued supply of major aircraft sections.

Boeing cannot afford to have Spirit fail. The supplier makes the forward fuselage of every Boeing commercial airplane and the entire fuselage of the MAX. It also makes wing components, engine nacelles and pylons for Boeing jets.

With this deal, Boeing acquires a troubled company running out of money. In the first quarter Spirit lost $617 million and at the end of March was $4.1 billion in debt with just $352 million cash on hand.

Spirit’s finances cratered in the past five years as delivery halts on the MAX and the 787 programs and then the aviation downturn due to the COVID-19 pandemic slashed its revenue. It also bled cash because of low pricing in its contracts with Airbus and Boeing.

With Spirit in crisis, former top Boeing executive Pat Shanahan was appointed interim CEO last September to try to turn around its fortunes.

Since then, the fuselage panel blowout on Alaska Airlines Flight 1282 shifted the focus from finances to ensuring manufacturing quality.

Gaining more control over manufacturing quality was another impetus for Boeing to take Spirit over.

Major quality lapses in Spirit’s building of the 737 MAX fuselage in Wichita last year had cut MAX deliveries to airlines for some months first in April then again in August.

This year, a constant flow of defect-ridden fuselages requiring minor rework at the MAX final assembly plant in Renton contributed to the Alaska Airlines incident in January.

“We believe this deal is in the best interest of the flying public, our airline customers, the employees of Spirit and Boeing, our shareholders and the country more broadly,” said CEO Calhoun. “By reintegrating Spirit, 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.”

Three separate news releases Sunday night, from Airbus, Boeing and Spirit, laid out their agreement on how Spirit will be dissected.

Airbus will acquire critical Spirit manufacturing facilities that supply its aircraft, notably in Kinston, North Carolina, and St. Nazaire in France that build part of the A350 fuselage; in Belfast, Northern Ireland, and Casablanca, Morocco, that build the wings and midfuselage of the A220; and a facility in Wichita that builds the engine pylons for the A220.

“With this agreement, Airbus aims to ensure stability of supply for its commercial aircraft programmes through a more sustainable way forward, both operationally and financially, for the various Airbus work packages that Spirit AeroSystems is responsible for today,” the company said in a news release.

In addition, Spirit proposes to sell off three facilities:

—The part of its Belfast operation that makes non-Airbus parts for business jets

—A parts plant in Subang, Malaysia, which among other components builds the door plug for the 737 MAX, the part that blew off the Alaska Airlines jet in January

—A facility in Prestwick, Scotland, supplying smaller wing components for the A320 jet family.

In addition to the major sections built for its commercial jets, Boeing will acquire some new defense work from Spirit’s military programs.

With those, Boeing becomes a supplier to Northrop Grumman on the Air Force B-21 bomber; to Sikorsky, now part of Lockheed Martin, on the Army’s CH-3 heavy lift helicopter; and to Bell Helicopter on the Army’s new V-280 tilt-rotor.

Boeing said it “will work with Spirit to ensure the continuity of operations supporting Spirit’s customers and programs it acquires, including working with the U.S. Department of Defense and Spirit defense customers.”

With this deal, Boeing adds just under 14,000 employees, out of a total Spirit workforce of nearly 20,700.

About 12,600 are in Wichita, 1,100 in Tulsa and another 100 in Dallas.

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