Exclusive: Boeing mulls shedding Airbus work in potential Spirit Aero deal

Boeing (BA.N), opens new tab is looking at how Spirit AeroSystems (SPR.N), opens new tab could shed or sharply reduce its ties to Airbus (AIR.PA), opens new tab, as the supply-chain giant's work for the European planemaker poses complications in rival Boeing's attempt to acquire its former subsidiary.

The U.S. planemaker is exploring offloading or redeploying specific Spirit businesses that supply key Airbus components if it reaches a deal, according to sources familiar with the matter.

Boeing and Airbus are the world's only major commercial aircraft makers, and both are trying to solve quality problems and hold down costs as the former deals with a crisis caused by a mid-air cabin panel blowout on a 737 MAX 9 in January.

While Boeing had previously weighed bringing Spirit back in to the fold, the Jan. 5 incident accelerated efforts as Boeing revisits the two-decade-old decision to separate a critical part of its manufacturing business to save money.

Boeing is also fine-tuning a defensive strategy in case European regulators take issue with Airbus relying on its main rival for key components in its supply chain, some of which are custom-made using proprietary design and technology.

The Airbus business generated a fifth of Spirit Aero's revenue in 2023, making it sizeable enough to factor in to a potential deal, though Boeing could complete a Spirit purchase without a sale of those businesses.

However, Boeing does not want to own Spirit Aero's Airbus business, which includes wing-making for the small A220 jet in Belfast, Northern Ireland that loses money, the sources said.

The four sources requested anonymity because the deliberations are confidential.

Spirit, which has a market value of close to $3.8 billion, has already held exploratory talks with Airbus about selling the plant, Reuters reported this month.

It is unclear how receptive Airbus might be to taking over Spirit operations. While its options to block a sale of Spirit to Boeing outright are limited, Airbus has significant lobbying power with European governments and could try to force Boeing to buy its way out of Spirit's Airbus contracts, the sources said.

"There are very active conversations but no clear road map," one of the sources said, adding that Airbus was studying all options.

Airbus and Boeing both declined comment.

Boeing has also been looking at whether other companies may be interested in Spirit's Airbus business, the sources said. It was not immediately clear if any interested party has emerged.

Spirit Aero spokesman Joe Buccino said the company is committed to acting in the best interests of customers, employees and shareholders. "As commercial negotiations with Airbus continue, many options remain viable," Buccino said, without elaborating.

PRODUCTION ISSUES

Boeing would gain more control of its production by buying back Spirit, but could have to pay large sums to buy its way out of contracts.

Spirit makes a key fuselage section and wing spars for the Airbus A350 wide-body jet at its Kinston plant in North Carolina, and wing parts for Airbus at Prestwick in Scotland.

"The Airbus A350 composite technology is sensitive because Airbus wouldn't want a rival in charge of important pieces in their production," aerospace analyst Richard Aboulafia said.

Spirit's backlog at the end of the fourth quarter of 2023 was approximately $49 billion, which includes work packages on all commercial platforms in the Airbus and Boeing backlog.

According to its latest annual report, 19% of Spirit Aero's revenue derives from Airbus projects, up from 10% in 2013.

Spirit also has been trying to secure better prices from Airbus, at a time when the European planemaker is looking for some supplier price cuts.

Without better prices, Spirit could lose more than $400 million annually while supplying Airbus with parts for its A220 and A350 aircraft in the coming years, TD Cowen analysts said.

"We don't see a Boeing-Spirit deal until Spirit's pricing issue on the A220 has been sorted out and there is clarity on what happens to the rest of the Airbus work," they wrote earlier this month.

Source: Reuters‍