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Boeing announced it entered into a definitive agreement to acquire Spirit AeroSystems early July 1 in an all-stock transaction at an equity value of $4.7 billion, or $37.25 per share.
The total transaction value is $8.3 billion, including Spirit’s last reported net debt.
Boeing’s acquisition of Wichita, Kansas-based Spirit will include substantially all Boeing-related commercial operations, as well as additional commercial, defense and aftermarket operations, according to the announcement. As part of the transaction, Boeing will work with Spirit to ensure the continuity of operations supporting Spirit’s customers and programs it acquires, including working with the U.S. Defense Department and Spirit defense customers.
Spirit also signed a binding term sheet with Airbus under which the European manufacturer will take on certain commercial work packages that Spirit performs for Airbus concurrently with the closing of the Boeing-Spirit merger.
Airbus will take over certain Spirit operations for a nominal fee of $1 and $559 million in compensation from Spirit. The work packages include the production of A350 fuselage sections in Kinston, North Carolina, and St. Nazaire, France; the A220’s wings and mid-fuselage in Belfast, Northern Ireland, and Casablanca, Morocco; and the A220 pylons in Wichita. In addition, Spirit plans to pursue the divestiture of operations in Subang, Malaysia, and Prestwick, Scotland, that support Airbus programs, as well as its non-Airbus work in Belfast, as that facility supports a number of other programs.
Airbus said that entering into definitive agreements remains subject to an ensuing due diligence process. “While there is no guarantee that a transaction will be concluded, all parties are willing and interested to work in good faith to progress and complete this process as timely as possible,” Airbus said.
Still, Boeing said the companies see the transaction closing mid-2025, subject to the sale of the Spirit operations related to Airbus commercial work packages and the satisfaction of customary closing conditions, including regulatory and Spirit shareholder approvals.
“We want to insource parts of Spirit against the backdrop of Spirit going back to Boeing,” Airbus CEO Guillaume Faury told Aviation Week in an interview conducted before the deal was announced. “[Production of Airbus components] is something we don’t want to see in the hands of a competitor.”
On vertical integration in general, Faury said that “we are verticalizing, but not as an overall strategy because I believe it would backfire with a huge complexity. But in this case, there is a big reward because it is a huge driver of performance, the ability to do the ramp-up, future products and control. You need to do what is really important and not do the rest.”
A ‘Slightly Higher’ Price
Boeing’s proposed price of $37.25 per share represents a 30% premium to Spirit’s closing stock price of $28.60 on Feb. 29, 2024—the day before Spirit and Boeing issued press releases confirming they were in discussions regarding a potential transaction.
“Bringing Spirit and Boeing together will enable greater integration of both companies’ manufacturing and engineering capabilities, including safety and quality systems,” said Patrick Shanahan, Spirit’s interim CEO and president. He continued, “We are proud of the part we have played in Airbus’ programs and believe bringing these programs under Airbus ownership will enable greater integration and alignment.”
According to Spirit, the supplier’s board of directors unanimously approved the definitive merger agreement with Boeing and the term sheet with Airbus.
“By reintegrating Spirit, we can fully align our commercial production systems, including our Safety and Quality Management Systems, and our workforce to the same priorities, incentives and outcomes—centered on safety and quality,” Boeing President and CEO Dave Calhoun said.
Boeing had initially said it would use debt and cash to buy Spirit, a move the companies confirmed they were discussing on March 1. But Boeing’s credit ratings with major agencies teeter on the brink of junk status. In subsequent months, Boeing executives voiced openness to using stock as currency instead.
Much like terms and conditions, the valuation method for deals between Spirit and the rival airframers has been mysterious to outsiders such as Wall Street analysts and industry consultants. A Boeing takeover of Spirit—something Boeing leaders publicly disdained up to last year—was identified as a central corrective action for the embattled OEM, which has come under fire for manufacturing mishaps this year following the Jan. 5 door plug blowout on an inflight Boeing 737-9.
“Although details are not yet clear, this price appears slightly higher than our expectations,” Bernstein Research analysts said June 30 after the announcements.
Melius Research analysts in late March said Spirit could be worth around $9 billion, or close to $49 a share, compared with the $29 per share that Spirit traded at before news of the deal talks were first reported. But Boeing did not have to pay fair value for Spirit, they pointed out, as Spirit relies on Boeing for most of its revenue and Spirit also suffers cash-draining contracts, including for Airbus. “It just needs to pay an amount that Spirit’s shareholders would deem acceptable,” the analysts noted at the time.
Analysts at Jefferies had guessed June 5 that a Boeing proposal could value Spirit around $38 a share, yet in a range of $28-40. Their valuation method assumed Boeing would not receive parts of Spirit that do work for Airbus.
Boeing will have to earn the trust of its new Wichita employees, said the senior U.S. senator from Missouri June 30 as it became apparent that an announcement was imminent.
“There is no doubt that Boeing has a fractured history in Wichita,” Sen. Jerry Moran (R-Kan.) said. “I have spoken to Boeing CEO Dave Calhoun and Chairman of the Board Steven Mollenkopf and conveyed that Boeing must earn the trust and respect of its Wichita employees and the community.”
In a separate but related development, Reuters reported that the U.S. Justice Department will criminally charge Boeing with fraud over two fatal crashes and ask the company to plead guilty or face a trial. Federal prosecutors allege Boeing violated the terms of a deferred prosecution agreement after the 737 MAX crashes in 2018 and 2019 that killed 346 people.
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