The Boeing Spirit AeroSystems Deal is Expensive

The Boeing Spirit AeroSystems Deal is Expensive.  The finalization of a re-acquisition by Boeing of Spirit AeroSystems has been widely announced as a $4.7 billion transaction, using stock rather than cash to complete the deal.  But that isn’t the entire story; Airbus will take some of the units from Spirit that produce components for the company for $1, and a cash payment from Spirit to Airbus will be $559 million.  Since that is cash that Boeing won’t be able to enjoy, we’re now up to $5.3 billion.

In addition, Spirit owes Boeing some recent loans and advanced payments from Boeing to Spirit AeroSystems. Those loans and advances helped maintain Spirit’s economic viability while the re-acquisition was negotiated. Boeing will now pay those loans and advanced payments to Spirit, meaning those loans and advances are also a cost to the transaction. Spirit’s debt amounted to around $3 billion, bringing the transaction total to $8.3.billion, as best we can tell.

Since Boeing sold this unit for $1 billion in 2005, its value increased eightfold over the last two decades.  Add to that integration costs and the actions that will be required to improve quality, and this deal could easily grow into the $9 to $10 billion range.  This is a critical transaction for Boeing, who cannot allow poor quality on Wichita produced fuselages that leads to traveled work in Seattle.  That traveled work is quite expensive, and disrupts the production flow on the shop floor.

The Bottom Line

Boeing had no choice but to acquire Spirit AeroSystems.  First, the poor fuselage quality coming from Wichita resulted in extensive traveled work as fuselages needed to be extensively reworked after arriving in Seattle.  The move to inspect fuselages in Wichita and have them corrected before shipping them to Seattle has improved the Renton production line operations and reduced cost.  Second, there is no alternative supplier of that complex an operation readily available to contract with – so Boeing was going to be stuck with Spirit.  With Spirit in financial difficulty, it became clear that if Boeing failed to step in and acquire the company,  continued supply of fuselages could be at risk.  We believe that the acquisition was a good, albeit expensive, move by Boeing to re-acquire Spirit.

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Ernest Arvai

President AirInsight Group LLC

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