Key Points:

  • Boeing has entered into an agreement with Spirit AeroSystems, offering financial support to help with 737 Max and 787 production issues.

  • Spirit AeroSystems, having faced production and quality challenges, is working closely with Boeing to ensure supply chain efficiency and market responsiveness.

  • The new deal establishes a change in pricing for Boeing components, which is expected to affect Spirit's revenue in the coming years.

Boeing extends financial support to Spirit AeroSystems

ARLINGTON —Boeing has pledged financial support to Spirit AeroSystems, a beleaguered aerostructures company, with the aim of ensuring the steady production of the 737 Max and 787s. The objective of the collaboration is to fortify the long-standing association between the two entities and to live up to airline and operational commitments. Spirit has grappled with production difficulties since the onset of the pandemic, particularly quality issues with the 737 Max fuselages.

Strengthening Collaborative Efforts 

Spirit AeroSystems' interim chief executive, Patrick Shanahan, who stepped into the role following former chief Tom Gentile's departure, stated, “Our collective teams will focus on further generating supply chain performance and resiliency. This united effort to synchronize our production systems will enable greater market responsiveness and delivery assurance.”

As detailed in a Spirit securities document, the terms of the agreement entail Boeing providing funds "for tooling and capital through 2025 for certain planned and potential 737 and 787 rate increases". A segment of the funding, amounting to $100 million, is scheduled to be disbursed within 10 business days post finalizing the agreement. The conclusion of the deal is set for 17 November.

Revised Component Pricing Strategy 

An intriguing facet of the agreement is the redefined pricing structure for components. The new setup stipulates an increase in the rates Boeing pays Spirit for 787 parts in the immediate future. Conversely, the rates for 737 Max sets slated for delivery from 2026 will experience a decrease. Consequently, this pricing alteration is projected to enhance Spirit's revenue by $455 million from 2023 through 2025, but subsequently reduce it by $265 million spanning 2026 to 2033.

Challenges in Production Quality 

A series of manufacturing flaws in the 737 fuselages that Spirit supplied to Boeing culminated in a $206 million deficit for Spirit in Q2 2023. These discrepancies encompassed issues with the 737 vertical fins and the fastener holes on aft pressure bulkheads. Such complications are compelling Boeing to carry out inspections on approximately 165 737 Max 8 fuselages that were previously handed over to the aviation giant.