Boeing in talks to buy Spirit AeroSystems in quality push

Washington/Bengaluru — Boeing is in talks to buy its former subsidiary Spirit AeroSystems and the plane maker is also delaying plans to ramp up 737 jetliner production as it tries to get control of a sprawling crisis sparked by a mid-air panel blowout.

For weeks, Boeing has been reeling from the fallout of the 737 MAX incident when a door plug blew off at 4,877m above the ground on January 5.

US aviation regulators have already curbed production and air carriers have been in discussion for more aircraft deliveries with its bigger rival, Airbus.

“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 said in a statement on March 1. Spirit AeroSystems confirmed the discussions.

In a related development on Friday, Reuters was the first to report that the company told suppliers it was delaying expected increases in plane production as it tries to regain the confidence of the industry and satisfy regulators’ desires for better oversight of its safety and quality control systems.

Reuters reported in February that years of decentralisation of Boeing’s plane-making capacity — along with an exodus of experienced workers and aggressive cost-cutting — has affected quality. Two crashes a few years ago dented the confidence of both the public and regulators in Boeing’s safety record.

The first crash, of a Lion Air flight in Indonesia, occurred in October 2018 and killed all 189 people aboard. The second crash of an Ethiopian Airlines flight in March 2019 killed 157 people.

Boeing spun off Spirit in 2005 and in recent years has struggled with cost pressures and problems that have slowed aircraft deliveries and thinned its balance sheet. Bringing Spirit back into the fold could address some of those quality issues as it would give Boeing more control over manufacturing.

The preliminary talks were reported early on March 1 Friday by the Wall Street Journal, which also said that Spirit has hired bankers.

Such a move could also help Boeing lower Spirit’s production costs, a senior industry source said. Boeing had previously considered repurchasing Spirit AeroSystems, but the optics of buying back at a higher price discouraged such a move, the source said.

However, Spirit’s shares have fallen 70% over the past five years, and its $3.3bn market value is far short of Boeing’s $124bn. “Boeing probably realises that divesting its Wichita operations that make up the core of Spirit AeroSystems was a strategic mistake,” Scott Mikus, equity research associate at Melius Research said. Shares of Spirit AeroSystems closed up 15% on March 1  in regular trading and were up 2.3% after hours. Boeing shares closed down 1.8% and were flat post market.

Boeing and regulators

The US Federal Aviation Administration in late January barred Boeing from increasing production of the 737 MAX as it presses for changes.

On Feb. 12, FAA head Mike Whitaker visited Boeing’s Renton, Washington, factory, where the 737 MAX line is produced, and expressed concerns about some things he saw on the tour to CEO Dave Calhoun earlier last week, two people briefed on the matter told Reuters.

According to Boeing’s latest 737 supplier master schedule seen by Reuters, the company had to delay plans to increase production from 38 to 42 aircraft a month to June, from the initial target date of February. Boeing has also pushed back subsequent production increases throughout 2024 and 2025.

Spirit, one of the industry’s major manufacturers of large aircraft structures, has struggled with cash flow problems over the past few quarters and quality issues surrounding the fuselages it makes for Boeing’s 737 narrowbody jets.

The company is also exploring selling operations in Ireland which make wings for the Airbus A220 jet, as it would be unusual for Boeing to supply its competitor.

“For Boeing, this does give them the opportunity to bring Spirit in-house and fix its problems, but Boeing of course has its own issues and has hardly covered itself with glory when it comes to execution of late,” said Vertical Research Partners analyst Robert Stallard.

Investigators are still trying to definitively sort out responsibility for the January 5 incident.

Spirit made the panel, but Boeing removed it to fix rivet damage and then put it back, according to a preliminary report by US investigators, who found pictures showing the panel at Boeing apparently missing key bolts.

Reuters