Boeing announced on Monday that it has agreed to purchase Spirit AeroSystems, a key supplier, marking the end of nearly two decades of outsourcing major components for its commercial planes, such as the 737 Max fuselage and parts for the 767, 777, and 787 models.
By acquiring Spirit, Boeing aims to address recent quality issues that have plagued the supplier. While Boeing already holds significant sway over Spirit, outright ownership will allow for better monitoring and adjustments in production practices. This move follows Boeing’s internal efforts to enhance quality after an incident in January where a panel detached from one of its planes mid-flight.
“Reintegrating Spirit will allow us to fully align our production and safety systems with our workforce,” said Boeing CEO Dave Calhoun in a statement.
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The deal, anticipated by many, is valued at $4.7 billion in stock, or $8.3 billion including Spirit’s debt. Completion of the acquisition is subject to regulatory and shareholder approval. Additionally, Boeing will divest portions of Spirit to its European competitor, Airbus, as part of the agreement. The acquisition is expected to close by mid-next year.
This purchase signals a strategic shift for Boeing, which had increased its reliance on independent suppliers in the 2000s to reduce costs and boost profits. Spirit AeroSystems was established in 2005 during this outsourcing phase when Boeing sold off a division in Wichita, Kansas, and operations in Oklahoma.
Spirit, besides its work for Boeing, also supplies components to other aerospace companies like Airbus, Bombardier, Lockheed Martin, Northrop Grumman, and Rolls-Royce. Last year, Boeing accounted for 64 percent of Spirit’s net revenue, while Airbus contributed 19 percent. Boeing’s offer to buy Spirit was at $37.25 per share, a 30 percent premium over Spirit’s stock price at the end of February when their talks were announced.
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Spirit’s quality issues led to a leadership change last fall, appointing Patrick Shanahan, a former Boeing executive and senior Defense Department official, as CEO. Shanahan, known for his ability to turn around troubled programs at Boeing, is now a leading candidate to succeed Calhoun, who plans to step down by the end of this year.
However, Boeing has its own quality challenges. The company has faced intense scrutiny since January 5th, when a panel on a 737 Max 9 detached during an Alaska Airlines flight shortly after takeoff. This panel, a door plug, covers an unnecessary emergency exit gap.
The Spirit agreement news came just hours after a report that federal officials planned to offer Boeing a plea deal in a fraud case related to two fatal crashes over five years ago that killed 346 people.
While no serious injuries occurred in the January incident, the consequences could have been severe if the panel had blown out at a higher altitude with passengers moving around. The National Transportation Safety Board (NTSB) indicated that the plane appeared to have left Boeing’s factory without the bolts securing the plug, and Boeing has been unable to find documentation of the work. The plug had been removed for Spirit workers to perform nearby repairs.
In response, Boeing has implemented several changes recently, expanding training, simplifying plans and processes, and increasing inspections at its 737 factory in Renton, Washington, and at Spirit. Since March, Boeing has also stopped accepting 737 fuselages from Spirit that do not fully meet its standards, previously tolerating some flaws to maintain production flow.
These changes have led to significant improvements, according to Elizabeth Lund, a top Boeing quality executive. She reported fewer major defects needing correction by Boeing, allowing for faster assembly of the Max once fuselages arrive in Renton.
Boeing also aims to reduce out-of-sequence manufacturing tasks, known as traveled work. While some traveled work is necessary, excessive amounts can disrupt the intricate process of airplane manufacturing, potentially causing defects and poor workmanship.
During a briefing with reporters, Lund explained how the plane involved in the January incident left the plant without the door plug fully secured. After the plug was removed for repairs, a crew prepared the plane to be moved outside, reinstalling the plug without its bolts, which was not that team’s responsibility.
Lund’s disclosure of new information prompted a sharp rebuke from the NTSB for violating rules about discussing an ongoing investigation. Boeing apologized to the safety board, acknowledging that it “overstepped the NTSB’s role as the source of investigative information.”
