Boeing Agrees to Acquire Spirit AeroSystems in $8.3bn Deal
Spirit AeroSystems, a Kansas-based fuselage maker, has been in the spotlight since January when a Boeing 737 MAX operated by Alaska Airlines suffered a mid-air blow-out of a door plug. The incident led to a plunge in Spirit’s shares and raised concerns about the quality of their work as Boeing worked to assure regulators and customers of the safety of their aircraft.
A preliminary report by the National Transportation Safety Board (NTSB) revealed that the fuselage contained defective rivets and that four bolts securing the door plug were missing, indicating errors by Boeing workers at their Renton, Washington plant.
To address quality issues at both companies, the solution of Boeing acquiring Spirit was rapidly suggested. Negotiations began in March and today, an agreement has been reached. Boeing will pay $4.7bn in shares to acquire Spirit and will also take on their debt, valuing the company at $8.3bn.
As part of the deal, Spirit will also pay Airbus $559m to take on their work at four of their plants, including production of A350 fuselage sections in North Carolina and France, as well as wings and mid-fuselage for the A220 in Belfast. The sale excludes Spirit’s other operations in Belfast, Prestwick, and Malaysia, which the company is seeking to sell.
The acquisition by Boeing is crucial in integrating fuselage manufacturing into their processes and improving quality control. Boeing CEO Dave Calhoun stated, “By reintegrating Spirit, we can fully align our commercial production systems, including our quality and safety management systems, and our workforce with the same priorities, incentives, and outcomes, focused on safety and quality.”
However, the integration of Spirit’s 14,000 employees into Boeing will take time, and it will be a while before the company can prove they have addressed quality issues. The deal, expected to close in the middle of next year, is being done in shares to protect Boeing’s credit rating, as the company is facing a potential downgrade to ‘junk’ status.
In addition to the acquisition, Bloomberg reported that Boeing is facing fraud charges for violating a 2021 deferred prosecution agreement with the US Justice Department, which could result in significant fines.
The agreement with Spirit is a step in the right direction for Boeing, but they still face numerous challenges. The biggest question for investors is who will replace Mr. Calhoun as CEO, with Stephanie Pope, a long-time Boeing executive, as the top internal candidate.
Other potential candidates include Wes Bush, former CEO of Northrop Grumman, and Greg Smith, chair of American Airlines and former Boeing CFO. However, the most likely candidate is Pat Shanahan, who became Spirit’s CEO in October 2019 and has 31 years of experience at Boeing, as well as serving as US deputy secretary of defence. He has been at the forefront of negotiations for the sale to Boeing and is now the front-runner for the CEO position.
