Boeing announces $4.7bn buyback of Spirit AeroSystems to improve plane safety

Boeing announced plans to acquire Spirit AeroSystems for $4.7billion in an all-stock transaction for the manufacturing firm

Boeing is set to take over Spirit AeroSystems in a $4.7billion deal, aiming to hike the bar for plane quality and ensuring maximum safety, amid growing pressure from regulators and industry observers.

Previously part of Boeing, re-acquiring Spirit signals a major shift in the aerospace giant's stance on outsourcing - a strategy that has been under fire following hitches at Spirit, which have bogged down production and affected deliveries of Boeing's star flyers, the 737s and the 787s. "We believe this deal is in the best interest of the flying public, our airline customers, the employees of Spirit and Boeing, our shareholders and the country more broadly," said Boeing President and chief executive Dave Calhoun.

The safety concerns came to the forefront following a scare on January 5 when an Alaska Airlines 737 Max 9 suffered a panel blowout mid-air, significantly raising alarm bells over Boeing's manufacturing processes and prompting increased scrutiny by the Federal Aviation Administration towards both Boeing and Spirit who provided the fuselage for the troubled aircraft.

No one was seriously injured in the Alaska Airlines door incident, which terrified passengers, but Boeing is under pressure from the U.S. Justice Department to plead guilty to criminal fraud in connection with two deadly plane crashes involving its 737 Max jetliners more than five years ago.

Boeing has been given until the end of this week to either accept or reject an offer that includes the aerospace giant agreeing to an independent monitor overseeing its compliance with anti-fraud laws, according to insiders who heard federal prosecutors outline a proposed deal on Sunday. The Justice Department claimed in a court filing back in May that Boeing had breached the terms of a 2021 settlement which allowed the company to avoid prosecution for actions leading up to the fatal crashes in Ethiopia and Indonesia, which resulted in the deaths of 346 people.

These crashes were attributed to a faulty sensor in a flight-control system and the investigation is separate from the probe into the more recent Alaska Airlines blowout, which involved Spirit. Boeing spun off Spirit, a company based in Wichita, Kansas, and not related to Spirit Airlines, back in 2005. In recent years, quality issues have escalated, including fuselage panels that didn't fit together accurately enough and holes that were drilled incorrectly.

Spirit ousted its chief executive in October and replaced him with Patrick Shanahan, a former Boeing executive who served as acting defence secretary during the Trump administration. The Alaska Airlines incident threw a spanner in the works when investigators discovered that a panel, which was meant to be an additional emergency exit, had been removed at a Boeing factory. This allowed Spirit workers to repair damaged rivets, but after the job, bolts crucial for holding the panel were missing.

The mystery remains as to who took out the bolts and didn't replace them. In the wake of the January incident, Spirit announced it would be cutting around 450 jobs at its Wichita facility due to a slowdown in production. The company's workforce stood just above 13,000 at the time.

"Bringing Spirit and Boeing together will enable greater integration of both companies' manufacturing and engineering capabilities, including safety and quality systems," declared Shanahan. The deal sees Boeing acquiring Spirit for an equity value of $4.7billion, equating to $37.25 per share, with the total transaction value hitting approximately $8.3 billion once Spirit's last reported net debt is factored in, according to the aerospace giant.

Boeing plans to swap common stock for Spirit shares using a variable formula based on the weighted average price of shares over a 15-day trading period ending two days before the acquisition's completion, the company explained. Additionally, the firms have struck a deal with Airbus to discuss buying Spirit assets related to projects run by the European aerospace titan. This agreement is poised to kick off following the finalisation of Boeing's purchase of Spirit, as stated by the two American corporations.