Boeing's Spirit Aero bid could help supply chain but is no cure-all
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[March 05, 2024] By
Allison Lampert and Abhijith Ganapavaram
(Reuters) - Boeing's possible takeover of Spirit AeroSystems, along with
delaying plans to ramp up production of 737 MAX jets, could help the
planemaker manage its supply chain, but the move is no quick fix for its
quality problems, analysts said.
Boeing is trying to manage a sprawling crisis that erupted after a door
plug blew off a 737 MAX jet at 16,000 feet (4,877 meters) above the
ground on Jan. 5. U.S. aviation regulators have curbed production as
they scrutinize safety processes at Boeing and Spirit, which was a
Boeing subsidiary until it was spun off in 2005.
The companies are in talks for Boeing to pull Spirit back into its fold,
they said on Friday. Three industry sources have called the advancing
discussions serious, although two said it could be weeks before a deal.
“I think that’s Boeing trying to get control of a major portion of the
supply chain,” said Jon Holden, president of District 751 of the
International Association of Machinists and Aerospace Workers, the
planemaker’s largest union.
"I have no inside info on if they are going to accomplish it, but it
looks like it's heading that way and I think it's the right move,"
Holden told Reuters.
Holden and his fellow Seattle area machinists will start contract talks
with the U.S. planemaker on March 8.
A Spirit deal could force the hand of European rival Airbus in acquiring
a plant in Belfast, Northern Ireland, that makes wings for the A220,
industry sources have said.
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On Friday, Reuters reported that Airbus and Spirit had held exploratory
talks on selling the plant to Airbus. Questions remain over other
Airbus-focused plants including Kinston, North Carolina, which makes
center-fuselage frame sections for the A350.
Spirit, a key supplier on Boeing's 737 MAX, makes about a quarter of its
revenue from Airbus programs. An Airbus spokesperson declined comment on
confidential discussions with suppliers.
For Boeing, bringing back struggling Spirit could help operations since
the combined company would command more manufacturing resources, but any
deal may not result in immediate quality benefits, analysts said.
The Federal Aviation Administration said on Monday its 737 MAX
production audit found multiple instances where Boeing and Spirit
allegedly failed to comply with manufacturing quality control
requirements.
Boeing and Spirit pointed to a Friday statement confirming the talks.
Boeing has cited quality issues as one reason for buying Spirit.
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![](../images/030524PIX/busine88.jpg)
Airplane fuselages bound for Boeing's 737 Max production facility
await shipment on rail sidings at their top supplier, Spirit
AeroSystems Holdings Inc, in Wichita, Kansas, U.S. December 17,
2019. REUTERS/Nick Oxford/File Photo
![](http://archives.lincolndailynews.com/2024/Mar/05/images/ads/current/graue_lda_chevysilverado4069_030424.jpg)
Preliminary investigations of the Jan. 5 incident show it was Boeing
staff in Washington state that removed the door plug to fix rivet
damage stemming from production at Spirit - but bolts required to
hold the plug in place were not reinstalled.
One of the three sources, a senior supply-chain executive, said
Boeing had little choice but to initiate acquisition talks. Faced
with the prospect of ever more loans or price concessions to Spirit
as it struggles to increase 737 production, it may make more sense
to buy the company back.
"The cards are on the table to ensure and protect the 737 MAX
program in the face of Airbus competition," Jefferies said in a
note.
A deal could also give Boeing greater influence over its supply
chain, J.P. Morgan analyst Seth Seifman wrote, at a time when there
are new delays to production increases crucial for its 2025-26 cash
flow goals.
On Friday, Boeing told suppliers it was delaying expected increases
in production.
Many suppliers struggled with a slump in demand during the pandemic
and an earlier 20-month grounding of Boeing's 737 MAX 8 that
temporarily halted production.
"It's giving us time to get our own house in order," said Rosemary
Brester, who runs Hobart Machined Products with her husband in
Washington state.
Hobart Machined Products has been wrestling with delays in obtaining
certain steel for its business, which includes milling and grinding
metal to make aircraft components. She said small suppliers need
help, given inflation and higher costs to access capital.
But while Boeing's new production schedule might be more realistic,
each delay erodes confidence by suppliers in the planemaker's
production rate announcements, said Glenn McDonald, a supply chain
specialist at U.S. aerospace consultancy Aerodynamic Advisory.
![](http://archives.lincolndailynews.com/2024/Mar/05/images/ads/current/siu_sda_022924.png)
"Realistically, I think most suppliers are already discounting rate
plans somewhat," he said.
(Reporting by Allison Lampert in Montreal and Abhijith Ganapavaram
in Bengaluru Additional reporting by Tim Hepher in Paris and Anirban
Sen in New York; Editing by Matthew Lewis)
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