Boeing has agreed with Spirit AeroSystems to purchase the company in an all-shares deal worth $4.7 billion as it attempts to overcome its production crisis.
Spirit, a Boeing spin-off from 2005, manufactured the door plug on a 737 Max 9 Alaska Airlines jet that blew open in midflight on January 5. This exposed safety and quality issues that forced Boeing to slow down production.
Spirit’s Northern Ireland plant, one of the largest employers in the province, will be affected by this move. It covers six sites and employs more than 3,000 people. Spirit purchased the business four years ago from Bombardier. The Canadian industrial conglomerate. Short Brothers was the first company to manufacture the Wright Brothers original aircraft design in the world.
Spirit was also an important supplier to Airbus. Boeing’s competitor had threatened to block any agreement that Boeing would build parts for their aircraft. Airbus announced that it would assume core activities in several Spirit plants as a result. Airbus will take over the core activities at several Spirit plants. These include production of A220 wings and mid fuselage in Belfast, Morocco, as well as in Casablanca. Spirit will compensate Airbus with $559 million.
A Spirit fuselage, which is used in all Max fuselages, was found to be defective during an investigation of the Alaska Airlines accident. Boeing’s assembly lines fixed the problems, but the retaining bolts of the plugs were not replaced.
Boeing was given 90-days to come up with a plan for improving manufacturing quality. Further investigations revealed other examples of substandard standards. The company won’t be allowed to increase Max until it can prove that everything is fine with the Federal Aviation Administration. This would result in lower profits and missed financial goals.
Dave Calhoun said that the Spirit deal will allow Boeing to focus more on quality and safety.
Dave Calhoun (67), the departing Boeing CEO, stated: “We think this deal is best for the flying public, Spirit Airlines customers, Boeing employees, and our shareholders.
By reintegrating Spirit we can align our commercial production system, our safety and Quality Management Systems, and our workforce with the same priorities and incentives, centred around safety and quality.
Spirit shareholders will get $37.50 per share. This price is 30 percent higher than Spirit’s closing share price on February 29th, the day before Boeing announced its takeover discussions. Spirit’s shares rose by $1.10 or 3.4 percent to $33.97 as of the New York close.
Boeing shares have now risen by $2.68, or 2.6%, to $186.78. Boeing shares are down by 28.0% this year. The company’s value is approximately $115 billion.
Airbus stated: “With this contract, Airbus seeks to ensure stable supply for its commercial aviation programmes by ensuring a more sustainable approach, both operationally as well as financially, for the different Airbus work packages for which Spirit AeroSystems today is responsible.”
Jefferies analysts said that while the deal will modestly reduce Boeing’s earnings, the benefits from having greater control over its supply chain may be “priceless”. The financial benefits of the deal would “be tied to Boeing’s capability to drive operational improvements and efficiency” at Spirit, they said. Boeing could save a lot more money if Spirit delivers on time.
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