Story Stocks^®

Boeing (BA +2%) announced this morning it will acquire Spirit AeroSystems (SPR +3%) in an all-stock deal valued at $4.7 bln, or $37.25 per SPR share. The total transaction value is $8.3 bln, when you include Spirit's debt. Our quick take is that this deal seems to be as much about an effort to shore up safety concerns in the public eye as it is about being a necessary strategic fit. If not for the recent safety issues and criticism about farming out production to third parties, we wonder if this deal gets made.

• What is interesting is that Spirit AeroSystems was once part of Boeing but was spun off in 2005. But now it's coming back under the Boeing umbrella. Spirit is one of the world's largest manufacturers of aerostructures. Its core products include fuselages, integrated wings and wing components, pylons, and nacelles. The transaction is expected to close mid-2025.
• Boeing is by far Spirit's largest customer, but it also serves Airbus. Boeing will acquire all Boeing-related commercial operations, as well as additional commercial, defense and aftermarket operations. It also includes a separate deal whereby Airbus will acquire Airbus-related commercial work packages. In addition, Spirit is proposing to sell certain of its operations, including those in Belfast, Northern Ireland (non-Airbus operations), Scotland and Malaysia.
• Boeing believes this deal is in the best interest of the flying public, its airline customers, employees and shareholders. By reintegrating Spirit, Boeing can fully align its commercial production systems, including its Safety and Quality Management Systems, and its workforce to the same priorities centered on safety and quality.
• It has been a rough few years for Boeing as various and well-documented safety issues have taken a toll on its financials and its reputation. For example, in Q1, Boeing reported its first revenue decline in six quarters. In particular, its Commercial Airplanes segment saw revenue fall 31% yr/yr to $4.65 bln, reflecting actions to slow down 737 production to drive improvements in quality following the door plug incident at Alaskan Airlines. Boeing has also slowed 787 production.

Overall, we think bringing Spirit back into the Boeing fold makes a lot of sense. With the fuselage being such a major component of an airplane build, bringing that back in-house should help in quieting a major complaint against Boeing, namely that it farmed out too much of its production process to third parties.

We also think the pretty subdued premium is quite fair for Boeing. Normally, when a company makes a purchase with all-stock, shares of the acquiring company take a hit. However, Boeing is trading higher, which tells us investors like this deal. Finally, while the deal likely makes financial sense, we think easing the public's concerns about safety played a large role in this decision.