By Abhijith Ganapavaram
(Reuters) – Boeing Co is in talks to buy its struggling former subsidiary Spirit AeroSystems, as both the companies try to solve persistent quality and safety problems related to 737 MAX production, the Wall Street Journal reported on Friday.
A merger would bring Spirit back under the umbrella of Boeing, which spun it off in 2005 and in recent years has struggled with persistent problems that have slowed aircraft deliveries and thinned its balance sheet.
Spirit has hired bankers to explore strategic options and has had preliminary discussions with Boeing, the Journal reported, citing people familiar with the matter. Boeing and Spirit declined to comment. Reuters could not immediately verify the report.
Shares of Spirit jumped 11% on Friday, while those of Boeing fell 1%.
Both Boeing and Spirit have been under fire since a Jan. 5 incident when a door plug blew off a 737 MAX plane in mid-flight, exposing frightened passengers to the outside air.
Reuters reported last month that years of decentralization of Boeing’s planemaking capacity – along with an exodus of experienced workers and aggressive cost-cutting – has affected quality. Bringing Spirit back into the fold could address some safety issues as Boeing tries to solve its latest reputational crisis.
Spirit, one of the industry’s major manufacturers of large aircraft structures, has struggled with cash flow problems over the past few quarters and quality issues surrounding the fuselages it makes for Boeing’s 737 narrowbody jets.
Boeing had considered buying Spirit AeroSystems back on multiple occasions over the years since divesting it, but the optics of buying at a higher price were among the factors that discouraged such a move, according to an industry source familiar with the matter.
Spirit’s shares have lost more than 70% of their value over the last five years, according to LSEG data.
Spirit is also exploring selling operations in Ireland that make parts for Airbus, according to the report. Spirit’s market capitalisation stood at $3.3 billion as of Thursday’s close.
The U.S. Federal Aviation Administration has barred Boeing from expanding production of its cash-cow 737 MAX family of jets after the Jan. 5 Alaska Airlines incident.
On Feb. 12, FAA head Mike Whitaker visited Boeing’s Renton, Washington, factory, where the 737 MAX line is produced, and expressed concerns about some things he saw on the tour to CEO Dave Calhoun earlier this week, two people briefed on the matter told Reuters.
Investigators are still trying to definitively sort out responsibility for the incident. Spirit made the panel, but Boeing removed it to fix rivet damage nearby and then put it back, according to a preliminary report by U.S. investigators who found pictures showing the panel at Boeing apparently missing key bolts.
Wichita, Kansas-based Spirit in October named former Boeing and Pentagon official Patrick Shanahan as its interim CEO, replacing Tom Gentile.
In the same month, Spirit reached an agreement with Boeing under which the supplier received immediate funding from the planemaker and revised prices for 737 and 787 production.
(Reporting by Abhijith Ganapavaram and Shivansh Tiwary in Bengaluru and Allison Lampert in Montreal; Editing by Anil D’Silva and Maju Samuel)
