Uncertainty Over Spirit AeroSystems' Acquisition of Bombardier will have Negative Economic Impacts for Both Parties, Says GlobalData

Sept. 29, 2020

Following reports that conditions related to Spirit’s planned Bombardier acquisition may not be met by the agreement’s deadline of October 31; Harry Boneham, aerospace and defense associate analyst at GlobalData, a leading data and analytics company, offers his view on the situation: 

“Spirit and Bombardier are exposed to the economic effects of the COVID-19 pandemic and this limits their capability to recover from the current crisis. If the deal is abandoned, it will have negative economic impacts for both parties.

“For Spirit AeroSystems, the acquisition, which was planned prior to the current crisis, was reportedly regarded as an avenue for the company to diversify its business and reduce its dependency on Boeing and the stricken 737 MAX. Given the production stoppages and cuts announced by Boeing due to the COVID-19 pandemic, the need for Spirit AeroSystems to cultivate other revenue streams outside of Boeing’s supply chains has only become more acute as the pandemic has progressed. The abandonment of this acquisition could leave Spirit AeroSystems exposed and reliant on business from Boeing and the still grounded 737 MAX.

“The abandonment will also adversely affect Bombardier’s COVID mitigation strategies. Firstly, Bombardier expected this acquisition to improve its cash position by approximately $500m and the lack of this liquidity leaves the company more vulnerable to the economic disruption brought on by COVID-19. Additionally, the divestiture of its commercial aircraft business, including a wing-manufacturing site in Ireland, manufacturing in Morocco and a maintenance and overhaul site in Dallas, would have allowed Bombardier to develop a business better aligned to the near-term market and provide the efficiencies the company needs to get through this crisis.

“As highlighted in GlobalData’s latest report, ‘COVID-19 - Sector Impact Analysis - Business Jets’, business jet sector confidence has started to recover, though diversification of revenue streams remains necessary throughout the overlapping supply chains in aerospace. This acquisition would have allowed Bombardier to withdraw from the highly disrupted commercial aviation space and strengthen its business jets offerings. Bombardier would thus benefit from the recovery in this sector, which is expected to be more bullish than others within aerospace. As it is, however, Bombardier, to a certain extent, remains exposed to the volatile commercial aerospace market.”