By Mike Stone, David Carnevali and Allison Lampert
March 19 (Reuters) – Boeing BA.N is contemplating how to untangle Spirit AeroSystems SPR.N from its association with Airbus AIR.PA, revealing complexities as Boeing maneuvers to reclaim its former subsidiary.
As the only major commercial aircraft makers globally, Boeing and Airbus grapple with quality issues and cost containment, especially as Boeing copes with the aftermath of a mid-air cabin panel mishap on a 737 MAX 9 in January.
The decision to separate a crucial part of its manufacturing business to economize was revisited by Boeing following the Jan. 5 incident, escalating efforts to reabsorb Spirit.
Boeing seeks to strategize defensively in case European regulators raise concerns about Airbus depending on its chief rival for crucial components, some of which are custom-crafted using exclusive design and technology.
In 2023, the Airbus segment accounted for one-fifth of Spirit Aero’s revenue, making it a substantial factor in a potential deal; however, Boeing could finalize a Spirit purchase without offloading these operations.
Nonetheless, Boeing’s aversion to owning Spirit Aero’s Airbus business, encompassing wing construction for the unprofitable A220 jet in Belfast, Northern Ireland, is evident.
Four undisclosed sources cited confidentiality for discussing these deliberations.
Spirit, with a market value nearing $3.8 billion, has initiated preliminary discussions with Airbus about divesting the Belfast plant, as reported by Reuters earlier this month.
The reception Airbus might give to acquiring Spirit’s operations remains uncertain. While Airbus’ ability to obstruct Spirit’s sale to Boeing outright is restricted, its substantial clout in lobbying with European governments might prompt Boeing to negotiate its way out of Spirit’s Airbus commitments, as per sources.
“There are ongoing discussions with no clear roadmap,” one source mentioned, emphasizing Airbus’ thorough examination of all available options.
Both Airbus and Boeing declined to comment.
Boeing has also entertained the possibility of other entities showing interest in Spirit’s Airbus division, according to sources, although any potential suitors are not immediately apparent.
Joe Buccino, Spirit Aero’s spokesman, emphasized the company’s commitment to acting in the best interests of stakeholders. “Several viable options remain available as commercial negotiations with Airbus progress,” Buccino stated, offering no further details.
NAVIGATING PRODUCTION CHALLENGES
Should Boeing repurchase Spirit, it stands to enhance control over its production processes but might face significant financial repercussions to exit existing contracts.
Spirit’s contributions to Airbus include a crucial fuselage section and wing spars for the Airbus A350 wide-body jet at its Kinston facility in North Carolina, and wing components for Airbus at Prestwick in Scotland.
“The sensitivity of Airbus A350 composite technology arises from Airbus’ reluctance to have a competitor oversee vital components of their production,” noted aerospace analyst Richard Aboulafia.
Spirit’s backlog by the end of Q4 2023 totaled approximately $49 billion, covering work across all commercial platforms in both the Airbus and Boeing backlogs.
As per its latest annual report, Airbus projects accounted for 19% of Spirit Aero’s revenue, marking a significant increase from 10% recorded in 2013.
Spirit is actively pursuing improved pricing from Airbus, given the latter’s quest for cost reductions from suppliers.
If better pricing agreements are not reached, Spirit faces potential annual losses exceeding $400 million while serving as a parts supplier for Airbus’s A220 and A350 models in the forthcoming years, as suggested by TD Cowen analysts.
“We do not envisage a Boeing-Spirit agreement until the pricing concerns regarding the A220 are resolved, coupled with clarity on the fate of other Airbus assignments,” the analysts highlighted earlier this month.
(Reporting by David Carnevali in New York, Mike Stone in Washington, Allison Lampert in Montreal and Tim Hepher in Paris; Editing by Greg Roumeliotis, David Gaffen and Matthew Lewis)
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