Boeing in Talks to Purchase Troubled Supplier Spirit AeroSystems
Boeing, the leading aircraft manufacturer, is currently engaged in discussions with bankers regarding the potential acquisition of its troubled supplier, Spirit AeroSystems. Spirit AeroSystems, based in Wichita, Kansas, was originally a part of Boeing but was spun off nearly two decades ago as Boeing pursued an outsourcing and divestment strategy. However, Boeing is now considering reversing this move and reintegrating Spirit AeroSystems into its operations.
The decision to explore the reacquisition of Spirit AeroSystems comes after a series of quality issues with the fuselage sections supplied by the company for Boeing’s 787 and 737 MAX jets. These problems resulted in delivery pauses at Boeing’s final assembly plants. To address these issues, Boeing sent a team of experts to assist Spirit AeroSystems in improving its manufacturing processes. Despite these efforts, the problems persisted, leading to the firing of Spirit AeroSystems’ CEO and his replacement with a former Boeing executive known for his hands-on management style.
If a deal is reached, it would mark a significant reversal for Boeing, as it would be the largest divestment in the company’s modern history. The move also signifies a recognition that Boeing’s previous strategy of aggressive outsourcing and divestments went too far and has ultimately damaged the company. By reintegrating Spirit AeroSystems, Boeing aims to strengthen aviation safety, improve quality, and better serve its customers, employees, and shareholders.
However, finalizing a deal to reacquire Spirit AeroSystems would be complex. After Boeing sold its Wichita unit to a private equity firm, Spirit AeroSystems went public in 2006 and diversified its business by becoming a supplier to other aircraft manufacturers, including Airbus. Therefore, if Boeing were to reacquire Spirit AeroSystems, it would likely need to divest all the facilities that supply Airbus.
Despite the challenges, analysts believe that acquiring Spirit AeroSystems could be beneficial for both companies. Boeing remains Spirit AeroSystems’ biggest customer, accounting for 64% of its revenue last year. For Spirit AeroSystems, selling its Wichita operations to Boeing would be a significant achievement, considering the company’s current financial struggles.
However, the potential acquisition could add additional financial pressure to Boeing, which already has significant net debt. To finance the purchase, Boeing would need to raise equity or increase its debt. Additionally, analysts suggest that Boeing may be under pressure from the Federal Aviation Administration to take firmer control of the manufacturing supply chain for its troubled 737 MAX jets.
The news of the acquisition talks surprised industry insiders, as Boeing’s leadership had previously denied any interest in acquiring Spirit AeroSystems. However, the quality control and financial problems at Spirit AeroSystems have worsened since then, leading to a change in perspective.
If the acquisition goes through, it could position the current CEO of Spirit AeroSystems, Pat Shanahan, as a potential candidate for the next CEO of Boeing. Shanahan previously served as deputy defense secretary under President Donald Trump after leaving Boeing.
In conclusion, Boeing’s potential acquisition of Spirit AeroSystems marks a significant shift in strategy for the aircraft manufacturer. It reflects a recognition that their previous outsourcing and divestment approach went too far and has resulted in quality issues and financial struggles. By reintegrating Spirit AeroSystems, Boeing aims to address these challenges and strengthen its position in the aviation industry. However, finalizing the deal will require careful consideration and negotiation due to the complexities involved.
