Boeing Agrees to Buy Spirit AeroSystems, a Longtime Supplier
nytimes.comThe interesting part of the deal is the parts spun off to Airbus. There are some minor components manufactured for Airbus jets, and then there's the A220 (formerly C-series), which as a designed by Bombardier plane, had production in the former Bombardier factories that were sold to Spirit. Most notably, the wings.
Airbus only needs the part of Spirit that relate to them, but Spirit's factories are not organised like that (e.g. the Northern Ireland complex that manufacturers the A220 wings also manufactures parts for Bombardier private jets). So it would be interesting exactly how Spirit, Boeing and Airbus split things up, and what the impact on workers and production will be.
Also, Airbus was asking to be paid for taking the parts of Spirit related to them because of their sorry state (the Northern Ireland site needs billions of investments, according to them). It's pretty funny if Boeing paid Airbus to take parts off Spirit so that Boeing can begin to try to fix their mistake from 20 years ago. Airbus are definitely making them a favour though (if they refuse, anti-competitive regulators will surely block the deal). So it's a win for Airbus, potential long term win for Boeing.
Edit: just read the FT's article on the topic, which is more detailed and covers those topics - Airbus will receive $559 million, and will take over Spirit factories in Northern Ireland, Morocco and France. Spirit will spin-off some other unrelated businesses, including other parts of the Northern Ireland facilities, which might be disastrous for the workforce there.
Article: Boeing agrees to buy Spirit AeroSystems in $4.7bn deal - https://on.ft.com/3VMqoiL via @FT
Spirit also manufacture carbon composite parts for the A350 in the US.
From the FT article:
> As part of that, Airbus will assume the work that Spirit does for its A220 and A350 aircraft programmes at several sites around the world, including Northern Ireland, the US, France and Morocco.
Yes, the only reason I mentioned it is that the US part wasn't in your comment. Otherwise all good!
So then Bombardier will become dependent on Airbus?
My reading of the situation is that no - Airbus will only take factories that produce components for Airbus planes; Boeing will do the same; and the rest will be spun off.
As an example, the Northern Ireland complex will be split (something the union explicitly didn't want because it's unsuitable for it and will lead to job lesses, according to them)
FYI, Spirit was originally part of Boeing. They're walking back a strategy of outsourcing that is said to be one of the causes of their recent QC problems.
It is one of the causes, because Spirit have had numerous serious quality control lapses they've tried to hide (including as trivial and as serious as failing to drill holes properly). But Boeing itself has the same types of issues, so while it will give them more control, there won't be a fundamental change unless Boeing manage to fix their culture, which is highly unlikely in the short term. Especially while they're preparing for union contract negotiations with multiple crucial unions that have them by the balls.
Trying to assemble planes with non-union workforce was another cause of Boeing’s production quality problems.
The people who made the dumb mistake that led to the Alaska Airlines blowout that could have been deadly quite easily were all union members. They worked around the system, removed bolts, did some work, forgot to put back bolts in. (I say they because Boeing, negligently, has no records of who did what, so the whole team of 20 people is responsible).
The main theme for Boeing in the past few decades has been lowering costs. Be it by forcing the hands of unions to lower salaries and benefits, or moving production to non-union places (787s in South Carolina), or offloading as much design and manufacturing work to subcontractors as possible, spinning off "unrelated" business such as manufacturing. Most of those were absolute disasters.
It feels like Boeing divested itself of Spirit to try and avoid the responsibilities of having to manufacture various components, but the awful culture was retained at Spirit and probably made worse by the priorities of its private equity owners.
> its private equity owners
Spirit is a public company [1].
> Spirit have had numerous serious quality control lapses
Boeing spun out Spirit to be able to fire all the experienced union employees and move the work to a state where they could hire non-union people, all part of cost-cutting.
Yes, that's covered in more detail in the article.
Spirit went public in 2006 at $26.00 per share, implying a $3.8bn market cap [1]. That’s about $40.50 ($5.9bn) today [2].
This deal is at $37.25 per share, implying a $4.7bn market cap and $8.3bn enterprise value [3]. Spirit’s shareholders got hosed; value was transferred to its lenders.
[1] https://www.seattletimes.com/business/spirit-aerosystems-gai...
[2] https://www.usinflationcalculator.com/
[3] https://www.ft.com/content/c35beaff-03d3-4a55-89ff-8adce4e06...
> Spirit’s shareholders got hosed; value was transferred to its lenders.
If you're gonna invest in an aircraft builder that sometimes forgets to put the bolts in, I think only losing 8% is a pretty good deal.
To be fair to Spirit, the didn't forget to put the bolts in - that was the idiots at Boeing sidestepping procedures.
Spirit are the idiots who can't drill holes properly.
Yep. And the low price, low quality play in that area is and should stay risky.
Not particularly; a number of Spirit's business units have been running at a loss for over a decade. Another way to put it is that Spirit's shareholders got hosed by Spirit's management.
But the shareholders collectively outrank the company management in a public company. So it is their failure as well, and so they have to take the L on this too.
Indeed, I think it would be fair to say that no one covered themselves in glory in the whole debacle.
Outsourcing is lame, and unwinding outsourcing can cost you money to settle issues with other companies which depend on that outsource agent and have regulatory and competition concerns you have to respect.
Paying Airbus to take their bit of this, is .. well it's strange but then I guess not.
Boeing being Boeing, somebody got a massive KPI for making this outsource happen, then somebody else will get a massive KPI for unwinding it.
> Outsourcing is lame, and unwinding outsourcing can cost you money
Apple (TSMC, Samsung), ARM (all fab), Microsoft (hardware) and NVIDIA (TSMC) each outsource critical parts of their value chains. The opposite of over-outsourcing is NBH syndrome.
TSMC‘s machines can build any kind of chip, once the masks are there, they have many customers and operate in highly competitive market where you can’t afford to fuck up and you can switch to a competitor more easily.
Spirit cannot easily build any airplane part, and it has very few customers and with very low levels of competition, so they can afford to be bad at their job because it is hard to switch suppliers.
The cases aren’t comparable.
> Spirit cannot easily build any airplane part, and it has very few customers and with very low levels of competition
The first two factors should increase Boeing’s leverage.
> cases aren’t comparable
Of course they are. They’re all examples of outsourcing. The conclusion is outsourcing isn’t bad per se.
> The first two factors should increase Boeing’s leverage.
No because there isn’t another supplier you can easily switch to. You can see this in the outrageous prices they are able to charge Boeing for parts. With chip fabs you can observe their performance in the marketplace and determine which one is good and which is bad. It makes sense to outsource to them because the know-how and capital requirements have grown beyond to what a single chip designer can reasonably do in-house. Even Intel tries to onboard outside customers to its fabs.
Why would you outsource building a plane wing? They are not standardized but different for each plane, they are huge so you can’t exactly build retoolable conveyer belt production lines and amortize this investment over many models.
The only reason to do this is to safe on labor costs and because you don’t want the hassle of doing it yourself, at which point you have become an OEM that just plugs things together. It is primitive MBA thinking that is ignoring 2nd order effects.
> No because there isn’t another supplier you can easily switch to
You listed three factors. The first two, ceteris paribus, increase buyer bargaining power; the last does not. That doesn’t change because in this situation the last overpowered the first two.
By analogy, shape, size and camber contribute to a wing’s stall speed. If a wing has the wrong camber, that doesn’t negate that all three are components. (And that wing, in turn, doesn’t disprove flight.)
> Why would you outsource building a plane wing? They are not standardized but different for each plane
This is true for a lot of specialised manufacturing, e.g. TSMC and Foxconn. Varied lines is not an argument against specialisation.
> they are huge so you can’t exactly build retoolable conveyer belt production line
The first moveable assembly line built ships at the Venetian Arsenale. Size is not an argument against specialisation.
> only reason to do this is to safe on labor costs and because you don’t want the hassle of doing it yourself
Not true for Spirit. In that case, it was labor complexity and capital costs.
> primitive MBA thinking
Shanahan, Spirit’s CEO, was an engineer before MBA.
Yes, but Apple has a habit of also shafting its outsources, like what they did to the UK designers back in the ipod era: as soon as chip design could make them more money they disintermediated. And now deal direct with the foundry.
ARM holdings annoys me. I wish they hadn't stopped doing fab. The potential weakness for the West dependency on TSMC worries me.
> potential weakness for the West dependency on TSMC worries me
TSMC, in turn, outsources the entire front end of its value chain to its customers.
There is nothing wrong with outsourcing. Boeing is just bad at supply chain management.
I think all your other examples are healthier because each step has multiple customers. The Boeing/Spirit arrangement looks more like an accounting gimmick than actual outsourcing.
These factories in question build for three major Western manufacturers: Boeing, Airbus, and Bombardier.
How much though? Somewhere else in this thread someone said 67% of their revenue is from Boeing.
Did you confuse ARM Holdings with AMD/GlobalFoundries?
> Did you confuse ARM Holdings with AMD/GlobalFoundries?
No. ARM is fabless. That was an outsourcing innovation not too long ago.
What I was replying to said:
> ARM holdings annoys me. I wish they hadn't stopped doing fab.
~~I thought ARM was always fabless?~~ Edit: I guess I'm somewhat mistaken after reading up on VLSI Technology.
ARM were in a jv with apple and a us vlsi fab company. They decided royalties were a better bet longterm.
>Outsourcing is lame
You can not make a modern airplane without significant outsourcing.
There is outsourcing of e.g. the engines, various hydraulic/electrical systems, electronics etc. etc. and then there is outsourcing bits of the fuselage, which is maybe not such a good idea. I mean, I understand how this came about - e.g. Spirit's location in Wichita was originally an independent airplane manufacturer (Stearman Aircraft, which was bought by United Aircraft and Transport Corp. and then became part of Boeing after UATC was broken up: https://en.wikipedia.org/wiki/Spirit_AeroSystems#History). Airbus is also made up of bits and pieces of various (former) European aircraft makers, so they also have assembly plants spread all over the continent, but these parts actually got more tightly integrated over the years, while Boeing took the opposite path.
SpaceX famously has almost no outsourcing. And Ford built his empire on vertical integration, all the way down to the mining the ore.
Neither are airplane manufacturers, but they represent companies on either side of the complex machine spectrum compared to airplanes.
Ford was last century though, can you do that in this century?
I wonder how far "no outsourcing" goes. Do they make their own nuts and bolts? Even if they do, the metal must've come from a supplier (unless they also have mines). Do they make their own screens, and chips, for the flight controls? Not being cynical/sarcastic, just curious.
Nuts and bolts are considered COTS items: Commodity Off The Shelf. They are not particular to e.g. the Falcon 9 or Starship. The word Commodity is important here - changing suppliers is relatively simple and there are standards that can be adhered to (but need to be checked, remember CSR-7).
Things like screens and chips are less of a commodity than are aerospace-grade bolts, but if I'm not mistaken many of these components are shared with another Musk company that designs and manufactures automobiles - so they have commodity of scale and a long track record, plus many realworld users to uncover bugs. It might not be the exact same component, but much is shared. One prominent example that was stated explicitly recently was the actuator motors for the Starship flaps - right out of a Tesla.
Archive link: https://archive.is/TE6iR
"in an all-stock deal"
https://www.reuters.com/markets/deals/boeing-agrees-deal-buy...
I'm no expert but who in the right mind agrees to getting paid in Boeing stocks?
Boeing is 64% of spirits revenue. Without Boeing, they don't exist anyway. Not to mention how Boeing's stock might be down, but they are not going to disappear at all.
Just from a strategic standpoint, USA has Boeing, EU Airbus and China has the Chinese Boeing /Airbus. Major aviation companies just aren't created any more, no major government would let their strategic assets fall like that.
China's commercial aerospace manufacturer is Comac, it was founded in 2008.
And 16 years later it has only "sold" less than a dozen airframes overseas (and non delivered). It was only this year (2024) that a Comac aircraft has completed its second international flight (Vietnam).
Comac have a long long way to go yet; they have yet to tackle the certification issue let alone the delivery and operational issues. Maybe another decade?
Only then could it be considered a proper international airframer.
Someone who knows how critical Boeing is (even in its depleted state) and thinks the government won’t let them fail?
Just hazarding a cynical guess.
This is Spirit’s current CEO [1]:
> Patrick Michael Shanahan (…) is a former United States federal government official who served as the acting United States Secretary of Defense in 2019.
which is to say that these are companies that are, in essence, controlled by the US Government when it comes to their strategic future, so in cases like this one here the money involved is of secondary importance.
> which is to say that these are companies that are, in essence, controlled by the US Government
Shanahan was in government for two years under a different administration, after 31 years at Boeing, and then returned to the private sector at the helm of a publicly-traded company. Nothing about this screams “controlled by the U.S. government.”
A high-executive getting appointed as Minister of Defence and then rapidly returning as a CEO of a company which has lots of Government contracts tells me exactly that. Had this happened in Russia or China the Western media would have had no qualms in painting said companies as Government pawns.
> returning as a CEO of a company which has lots of Government contracts
Spirit has negligible government contracts. They supply Boeing, Airbus and Bombardier.
> Had this happened in Russia or China the Western media would have had no qualms in painting said companies as Government pawns
No. If anything, it would have been pitched as quasi-oligarchic.
Depends on the stock you’re trading in, and judging from the news, spirit stock might just be even less solid than Boeing. As far as I understand, a lot of Boeings issues are connected to Spirit as a subcontractor. At the very least, you can rest assured that the US government won’t let Boeing fail completely.
Uhh, it’s a public traded company, you sell the stock if you don’t have faith in the company fixing things.
There are two commercial airline manufacturers in the world and a rapidly growing global population. Boeing has a 10+ year manufacturing backlog of 5600+ aircraft. Airbus has a backlog of about 7500. Both companies produce around 550 commercial units a year.
> Both companies produce around 550 commercial units a year
Boeing has significantly lower production rates nowadays - due to supply chain issues and massive incompetence that led to a near crash. For the 737 Max, their highest selling model, they're capped at 38 by the FAA, below the 45 they did last year and well below their 57 target (all figures in per month).
Their only other jet in manufacturing is the 787 which has a healthy backlog.
The 777X is delayed for years and won't see any deliveries before 2026.
Also, they have union negotiations with two important unions that have been saving money for years for a strike coming up in the next few months. And they're in the midst of a CEO change after the previous CEO was ousted by airline customers. Oh and their credit rating is on its way to a downgrade, meaning it will become even more expensive for them to get the loans they need to fix themselves.
Boeing are not going to get any better any soon. It will take years of hard effort and lots of money, which means their stock will be in the gutter for years to come.
> which means their stock will be in the gutter for years to come
You're missing the point of my reply. The person was acting like accepting billions of dollars in $BA stock was an unconscionable thing. It's a highly liquid and relatively stable stock. Even if they have a 6-month lockup, the price won't likely materially change. Will Airbus continue to take market share from Boeing? Sure. But Boeing isn't going anywhere in any of our lifetimes.
And you're missing the bigger picture. Boeing are in a slump, and things will only get worse in the foreseeable future.
And the problem is that when the foreseeable future is over, it will be the 2030s and we'll probably have entirely new radical designs flying. Hydrogen propulsion, CFM Rise, blended wings, etc. etc. If Boeing are bleeding money and taking on expensive debt, how will they prepare for those times? If multiple of their designs are being years late, how will they have the engineering capacity to think of future designs?
Boeing the company is going nowhere. Boeing the commercial airplane maker is circling the drain in terms of how competitive they are. Their military and cargo jets, as long as the massive backlog, will keep them up for the next two decades easy. However if they can't improve themselves by next decade, they'll be forever behind.
Who the fuck are you arguing with? I’m not suggesting $BA is a good investment. I said it’s a totally fine vehicle to accept payment in because it’s relatively stable and easily converted to cash.
Do you find yourself doing this a lot? Forcing conversations into a direction where you can drop your fifteen minutes of research on a topic?
Nobody fucking cares dude.
> relatively stable
This is the part I'm arguing with, directly quoted from you. They're in for a bad decade of heavy and expensive debts, missing delivery targets, prolonged strikes. This does not make for a stable stock price.
People don’t seem to understand this simple reality about the stock market. Pessimism or optimism about a company’s future is already priced in. People don’t wait for a company to fail before they start selling.
Both companies produce around 550 commercial units a year.
From the 2023 Airbus annual report[1]: ...deliveries rise 11% to 735 aircraft. So in 2022 it would've been 660. Quite a bit more than 550.
[1] https://www.airbus.com/en/investors/financial-results-annual...