Parts and Reputation: Boeing to Buy Supplier After Quality Control Issues

To keep costs down, Boeing has been outsourcing manufacturing for two decades. How’s that working out for them? 

Boeing announced Monday that it agreed to buy one of its biggest suppliers, Spirit AeroSystems, for $4.7 billion, about 20 years after selling the company as it embraced collaborative aircraft-building. The deal will bring the production of the body of 737 Max planes and parts of 767, 777, and 787 models in-house, crucial at a time when a series of accidents have left the company’s reputation in tatters. But it will also bring in debt as Boeing tries to preserve an investment-grade credit rating hovering just above junk status.

Weather It Together

Until 2005, Spirit — not to be confused with the discount airline — was owned by Boeing, which remains its biggest client by far. Boeing was responsible for 64% of Spirit’s revenue in 2023; Boeing arch-rival Airbus — which agreed to take on some of Spirit’s European assets in the deal, along with $559 million in compensation — accounted for 19%.

Boeing and Spirit have attracted intense scrutiny since January, when part of a Spirit-made fuselage blew off a 737 Max 9 during an Alaska Airlines flight. The planemaker was already in hot water over crashes of Max 8 aircraft in 2018 and 2019 that killed 346 people. The two companies will now try to regain the public and market’s trust together under one roof:

• Boeing CEO Dave Calhoun has pledged to step down by the end of the year; quality issues at Spirit had already forced a leadership change last fall when Patrick Shanahan, a former senior vice president at Boeing, took over. In a game of corporate musical chairs, Shanahan is considered a potential successor to Calhoun.
• Boeing’s offer to buy Spirit comes in at $37.25 per share, a 30% premium over February when the two announced they were in talks. Boeing also plans to assume roughly $3.5 billion of Spirit’s debt as part of the deal. 

The deal is not expected to close until mid-2025, giving Boeing a little time to address its own debt — the company reported $47 billion in debt at the end of the first quarter, and issued $10 billion in bonds in April — as it has been tagged with a negative outlook by all three major credit-rating agencies, which also rate its credit quality just one notch above junk grade.

Deal or No Deal: Boeing also faces a tense decision as to whether to plead guilty to pending fraud charges related to the fatal 2018 and 2019 crashes. According to multiple media reports on Sunday, prosecutors have given the company a week to take a plea deal or face trial — a guilty plea including a hefty fine and probation period could avoid a difficult legal process, but could also jeopardize the company’s lucrative work for the US military.