Boeing Agrees to Buy Spirit AeroSystems, a Longtime Supplier
nytimes.com
nytimes.com
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
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)
> 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.
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.
Spirit is a public company [1].
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.
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...
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.
Spirit are the idiots who can't drill holes properly.
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.
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.
ARM holdings annoys me. I wish they hadn't stopped doing fab. The 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.
No. ARM is fabless. That was an outsourcing innovation not too long ago.
> 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.
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.
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.
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.
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.
You can not make a modern airplane without significant outsourcing.
Neither are airplane manufacturers, but they represent companies on either side of the complex machine spectrum compared to airplanes.
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.
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.
https://www.reuters.com/markets/deals/boeing-agrees-deal-buy...
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.
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.
Just hazarding a cynical guess.
> 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.
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.”
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.
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.
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...
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.
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 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.
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.
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.