July 17, 2024

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Boeing Agrees to Buy Spirit AeroSystems, Longtime Supplier

Boeing Agrees to Buy Spirit AeroSystems, Longtime Supplier

Boeing Co. said Monday it has agreed to buy a major supplier, Spirit Aerosystems Inc., ending a nearly two-decade experiment of outsourcing production of key components for its commercial jetliners, including the 737 Max airframe and parts for the 767, 777 and 787.

By purchasing Spirit, Boeing hopes to reduce the quality problems that have plagued the supplier in recent years. While Boeing already has significant influence over Spirit, it will be more easily able to monitor and change production practices by owning the company outright. Boeing has taken internal steps to improve quality as well, after a horrific accident in which a panel on one of its planes exploded during a flight in January.

“By reintegrating Spirit, the company can ‘fully align’ its production and safety systems with its workforce,” Boeing CEO Dave Calhoun said in a statement.

The widely expected deal is worth $4.7 billion in stock, or $8.3 billion including Spirit’s debt. It must be approved by regulators and Spirit shareholders to close. Boeing will also spin off parts of Spirit to Airbus, its European rival, as part of the deal. Boeing said its acquisition of Spirit is expected to close by the middle of next year.

The purchase represents a strategic shift for Boeing, which began relying more on independent suppliers in the 2000s to cut costs and boost profits. Spirit was created during an outsourcing drive in 2005, when Boeing sold a division in Wichita, Kan., and operations in Oklahoma.

In addition to its work for Boeing, Spirit manufactures components for aerospace companies including Airbus, Bombardier, Lockheed Martin, Northrop Grumman and Rolls-Royce. Boeing accounted for 64 percent of Spirit’s net revenues last year, while Airbus accounted for 19 percent. Boeing offered to buy Spirit at $37.25 per share 30 percent Spirit’s stock was up 1.2% year-over-year at the end of February before the two companies announced they were in talks.

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Spirit’s quality problems led to a leadership change last fall, with Patrick Shanahan, a former Boeing executive and former senior Defense Department official, becoming CEO. At Boeing, Mr. Shanahan was seen as an accomplished executive who could quickly turn around faltering programs or units. He is now a leading candidate to replace Mr Calhoun, who plans to step down by the end of this year.

But Boeing has particular problems with quality. The company has faced intense scrutiny since the January 5 incident in which a panel exploded on a 737 Max 9 plane during an Alaska Airlines flight shortly after takeoff. The plate, known as a door stop, covers the gap left by an unnecessary emergency exit.

News of the Spirit deal came hours after a report that federal officials were planning to offer Boeing a plea deal in a fraud case related to a pair of fatal crashes more than five years ago that killed 346 people.

Although no serious injuries were reported in the January incident, the consequences could have been far more serious had the panel exploded at higher altitude as passengers moved around the cabin. The National Transportation Safety Board said the plane apparently left the Boeing factory without the bolts needed to secure the plug, and the company said it could not find documentation of that work. The plug was removed so Spirit workers could make repairs nearby.

In response, Boeing has made several changes in recent months. It said it has expanded training, streamlined plans and processes and increased inspections at its 737 factory in Renton, Wash., as well as at Spirit. Since March, it has also stopped accepting Spirit 737 fuselages or parts that don’t fully meet Boeing’s standards. It has previously tolerated some defects that can be fixed later, to keep production running.

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Elizabeth Lund, a senior executive in Boeing’s quality division, told reporters at the plant last week that the change had yielded significant benefits. She added that Boeing now needs to fix far fewer major defects, and that the company is able to assemble the Max planes more quickly once the structures arrive in Renton.

Boeing also said it aims to reduce its practice of performing out-of-sequence manufacturing tasks, also known as mobile work. Some mobile work is necessary, but too much of it can disrupt the complex process of manufacturing an airplane, potentially contributing to defects and poor workmanship.

In a briefing with reporters, Ms. Lund also shared new details about how the plane involved in the January flight left the factory without the door plug fully secured. She added that after removing the plug for nearby repairs, the crew prepared the plane for transport outside and put the plug back in place without its screws, which was not the responsibility of the team.

Ms. Lund’s disclosure of new information, along with other comments in that briefing, angered the National Transportation Safety Board, which sharply criticized Boeing for violating rules about talking about an ongoing investigation.

Boeing apologized to the safety board, admitting it had “overstepped the NTSB’s role as a source of investigative information.”