Boeing said on Monday it had agreed to buy a major supplier, Spirit AeroSystems, ending a nearly two-decade experiment in outsourcing production of major components of its commercial airplanes, including the body of the 737 Max and parts of the 767, 777 and 787.
By purchasing Spirit, Boeing hopes to address quality issues that have plagued the supplier in recent years. While it already has significant influence over Spirit, Boeing will be able to monitor and change production practices more easily by owning the business outright. Boeing has also taken internal steps to improve quality, after a horrific incident in which a panel exploded on one of its planes during a flight in January.
“By bringing Spirit back,” Boeing CEO Dave Calhoun said in a statement, the company “can fully align” its production and safety systems with its workforce.
The deal, which was widely expected, was valued at $4.7 billion in stock or $8.3 billion including Spirit debt. To be completed, it must be approved by regulators and Spirit shareholders. Boeing will also spin off parts of Spirit to Airbus, its European rival, as part of the transaction. Boeing said the Spirit acquisition is expected to close by the middle of next year.
The purchase represents a change in strategy for Boeing, which began relying more on independent suppliers in the 2000s to reduce costs and increase profits. Spirit was created during that outsourcing drive in 2005, when Boeing sold a division in Wichita, Kansas, and operations in Oklahoma.
In addition to its work for Boeing, Spirit makes components for aerospace companies including Airbus, Bombardier, Lockheed Martin, Northrop Grumman and Rolls-Royce. Boeing accounted for 64 percent of Spirit’s net revenue last year, while Airbus accounted for 19 percent. Boeing offered to buy Spirit at $37.25 a share, a 30 percent premium to Spirit’s stock price in late February, before the two companies announced they were in talks.
Spirit’s quality problems led to a management shakeup last fall, in which Patrick Shanahan, a former Boeing executive and former top Defense Department official, became CEO. At Boeing, Shanahan was considered a competent executive who could quickly fix problem programs or units. He is now a leading candidate to replace Calhoun, who plans to leave office at the end of this year.
But Boeing has its own quality problems. The company has faced intense scrutiny since the Jan. 5 incident in which a panel on a 737 Max 9 exploded during an Alaska Airlines flight shortly after takeoff. The panel, known as a door stopper, covers the space left by an unnecessary emergency exit.
News of the Spirit deal came hours after a report that federal officials planned 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.
While no serious injuries were reported in the January episode, the consequences could have been much more serious if the panel had exploded at a higher altitude as passengers moved around the cabin. The National Transportation Safety Board has said the plane appeared to have left a Boeing factory without the bolts needed to secure the plug, and the company has said it cannot find documentation of that work. The plug had been 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, Washington, as well as at Spirit. Since March, it also stopped accepting 737 bodies or fuselages from Spirit that don’t fully meet Boeing standards. It had previously tolerated some defects that could be corrected later, in order to keep production moving.
That change has produced significant benefits, Elizabeth Lund, a senior Boeing quality executive, told reporters at the factory last week. Boeing needs to fix far fewer major defects now, she said, and the company can assemble the Max much faster once the bodies arrive in Renton.
Boeing has also said it intends to reduce its practice of performing manufacturing tasks out of sequence, also known as roaming work. Some roaming work is considered necessary, but too much can disrupt the complicated airplane manufacturing process, possibly contributing to defects and poor workmanship.
In the briefing with reporters, Lund also shared new details about how the plane involved in the January flight left the plant without the door plug fully secured. After the plug was removed to make nearby repairs, a crew prepared the plane to be moved outside by putting the plug back in place without its bolts, which was not that team’s responsibility, he said.
Lund’s disclosure of the new information, along with other comments at that briefing, sparked fury from the NTSB, which sharply rebuked Boeing for violating rules about discussing an ongoing investigation.
Boeing apologized to the safety board and acknowledged that it “overstepped the NTSB’s role as a source of investigative information.”
