This morning’s business headlines feature breaking news regarding the announcement that Boeing has now reached an agreement to acquire aircraft aerostructures supplier Spirit AeroSystems.

The reported all-stock deal has a total reported value of $8.3 billion when Spirit’s net debt is included. Boeing will reportedly offer the sum of $37.25 per share for outstanding Spirit AeroSystems shares.

The announcement of formal talks to re-acquire Spirit occurred in March.

Reports point to a three-way transaction that will return Boeing’s fuselage structural component production back to direct Boeing control, in essence ending a major outsourcing strategy that was initiated in 2005.

Commenting on the agreement, Boeing CEO Dave Calhoun indicated: “We believe this deal is in the best interest of the flying public, our airline customers, the employees of Spirit and Boeing, our shareholders and the country more broadly.” In a reported company wide communication, Calhoun further indicated that: “Among the many actions we’re taking as a company, this is one of the most significant in demonstrating our unwavering commitment to strengthen quality and make certain that Boeing is the company the world needs it to be.

 

Carve Out Agreements with Airbus

As Supply Chain Matters, various industry and business media have previously noted, one of the complexities involved for Boeing to be able to reacquire Spirit was to reach agreements on the supply contracts that this supplier has with industry rival Airbus.

To that end, Airbus announced today that the European based company “has entered into a binding term sheet agreement with Spirit AeroSystems in relation to a potential acquisition of major activities related to Airbus, notably the production of A350 fuselage sections in Kinston, North Carolina, U.S., and St. Nazaire, France; of the A220’s wings and mid-fuselage in Belfast, Northern Ireland, and Casablanca, Morocco; as well as of the A220 pylons in Wichita, Kansas, U.S.

Spirit AeroSystems will compensate Airbus with a $559 million payment, along with a nominal consideration of one dollar for the respective Spirit assets dedicated to Airbus supply needs.

The deal is expected to close sometime in mid-2025, subject to approval by necessary governmental regulators, Spirit AeroSystems shareholders along with the formal sale of Spirit’s designated assets dedicated to Airbus fuselage structure supply needs.

Other Deal Aspects and Additional Perspectives

As stated in the statements from Boeing’s CEO, this deal will be crucial to the efforts of Boeing to reestablish production quality practices and control for multiple aircraft family programs.

The near catastrophic blowout of the rear panel door of an Alaska Airlines Boeing 737 MAX 8 aircraft in January has been the prime catalyst of the ongoing Boeing quality crisis and the focus on the U.S. plane maker’s lack of quality management practices.

As Supply Chain Matters has been noted in our ongoing commentaries, a further aspect for turning around Boeing is a new CEO that provides proven operations management experience.

Bloomberg, in its reporting of the announced Spirit AeroSystems acquisition deal, indicated that existing Spirit CEO Pat Shanahan, who is a former Boeing senior operations executive, “is considered to be a potential contender to succeed Calhoun in Boeing’s top role.” That seems to be the prevailing view of Wall Street stakeholders.

From our lens, a highly seasoned operations executive recruited external to Boeing, would be better in the ability to lead significant systemic change to the existing corporate culture of Boeing.

To cite other evidence, a published report from the New York Times describing the Spirit deal, provides mention to Elizabeth Lund, Boeing’s appointed top quality executive. Lund reportedly indicated to reporters last week that recent changes enacted in production and quality inspection practices within Boeing and Sprit AeroSystems production processes have resulted in “significantly fewer major defects needing to be addressed now, and that the company is able to assemble the Max much more quickly once bodies arrive in Renton.” Lund reportedly further indicated to reporters that the Alaska Airlines MAX aircraft involved in the January incident departed the factory without the door plugs being secured because the workers who removed the plug to make needed repairs, had readied this aircraft to be moved outside, without the bolts being re-installed, which was the responsibility of the that team.

Reportedly, that disclosure along with these added comments triggered the consternation of the National Transportation Safety Board (NTSB) which reportedly strongly rebuked Boeing for violating rules about speaking about speaking about an ongoing investigation.” The report notes that Boeing has since formally apologized to the safety agency.

With Boeing CEO Calhoun expected to depart the company by the end of this year, and with expectations that this Spirit deal will not close until mid-2015, the need for highly experienced senior leadership at the top becomes more immediate with each passing week. The stakes for this industry and for its respective supply networks continue growing.

 

Bob Ferrari

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