Boeing said Friday that it is in preliminary talks to buy Spirit AeroSystems, which builds fuselages for Boeing 737 Max jetliners, including the one that suffered a door-panel blowout on an Alaska Airlines flight in January.
Boeing used to own Spirit, and it said that bringing the supplier back into the Boeing fold would improve plane quality and safety, which has come under increasing scrutiny by regulators, Congress and airlines.
Buying Spirit back would reverse a longtime Boeing strategy of outsourcing key work on its passenger planes. That approach has been criticized as problems at Spirit have disrupted production and delivery of popular Boeing jetliners including 737s and 787s.
Concerns about quality came to a head after the Jan. 5 blowout of a panel on an Alaska 737 Max 9 at 16,000 feet over Oregon.
Days after the incident, the Federal Aviation Administration announced increased oversight of Boeing and Spirit. This week, the FAA gave Boeing 90 days to submit a plan to improve quality and address safety concerns raised by a panel of experts who spent a year studying the company.
Boeing CEO David Calhoun has long defended the outsourcing strategy, but his tone changed after the blowout. On Jan. 31, as Boeing reported a fourth-quarter loss, Calhoun said that outsourcing probably went too far.
In a statement Friday, the company said, “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.”
A deal would give Boeing more control over its production chain, but fixing Spirit would present Boeing with new challenges while regulators are pressuring the company to improve its own work. And it could add to Boeing’s debt load, already at USD 52 billion.
Spirit AeroSystems also confirmed the talks, while cautioning that it could not make any promises about closing a deal or its terms.
Shares of Spirit rose more than 15 per cent after media reports that the two companies were talking about a sale.
“In 2023 IAG more than doubled its operating margin and profit compared to 2022, generated excellent free cash flow and strengthened its balance sheet position,” IAG CEO Luis Gallego said in a statement. Gallego said that the Middle East conflict had impacted mostly corporate demand in the last quarter of 2023 and the first quarter of 2024, but was expected to recover.
Boeing spun off Spirit in 2005. In recent years, quality problems have mounted at Spirit, including fuselage panels that didn’t fit together precisely enough and holes that were improperly drilled.
Spirit – which is not related to Spirit Airlines – removed its CEO in October and replaced him with Patrick Shanahan, a former Boeing executive who served as acting defense secretary in the Trump administration.
Things seemed to be going more smoothly until the Alaska Airlines incident. Investigators said a panel used in place of an extra emergency door had been removed at a Boeing factory to let Spirit workers fix damaged rivets, and bolts that help hold the panel in place were missing after the repair job. It is not clear who removed the bolts and failed to put them back.
Two weeks later, during a tour of the Spirit factory in Wichita, Kansas, Calhoun and Shanahan pledged to work together to improve manufacturing quality. “We will restore confidence,” Shanahan vowed.
About 70 per cent of Spirit AeroSystems’ revenue last year came from work done for Boeing, according to Spirit’s latest annual report. That is up from 60 per cent two years earlier. Most of the company’s other revenue comes from making parts for Airbus, Boeing’s European rival.
The talks between Boeing and Spirit were first reported by The Wall Street Journal, which said Spirit hired bankers to consider strategic options and had held preliminary discussions about a sale to Boeing. Spirit also is looking into selling operations in Ireland that make parts for Airbus, the newspaper reported.
Spirit lost USD 616 million last year and hasn’t turned a full-year profit since 2019. Since then, it has lost more than USD 2.5 billion. Boeing agreed in October to give more financial help to Spirit. Boeing said it would provide USD 100 million for Spirit to retool its factory and adjust prices to give the supplier another USD 455 million over two years.
