Amid DOJ fraud suit, Boeing is set to buy back Spirit Aerosystems
Amid DOJ fraud suit, Boeing is set to buy back Spirit Aerosystems
The Department of Justice plans to charge plane manufacturer Boeing with fraud after it allegedly violated an agreement that shielded it from prosecution over fatal crashes involving its 737 Max jets, according to reports released Monday. The DOJ is also reportedly urging Boeing to plead guilty.
At the same time the company announced it has agreed to buy one of its key suppliers, Spirit Aerosystems — or rather, to buy it back. Spirit was a division of Boeing until 2005, when the aerospace giant spun it off.
Spirit makes fuselages, including the one that lost a door panel midair on an Alaska Airlines flight in January.
Richard Aboulafia is with the consultancy Aerodynamic Advisory. According to Aboulafia, Boeing thought selling off Spirit Aerosystems in the first place was just good business.
“The idea was they could just not have to worry about the enormous problem of building the body of the plane,” Aboulafia said.
Building fuselages is expensive, Aboulafia added. In theory, making Spirit stand alone would reduce Boeing’s overhead because rivals, including Airbus, could also do business with the new company.
“Meanwhile, Boeing had ambitions of simply crunching it on price, basically demanding price concessions to enhance their own profitability,” Aboulafia said.
Boeing tried that for almost two decades. But then came the two deadly 737 Max crashes, plus a supply chain scramble due to covid, and “the great experiment failed,” said Richard Safran with Seaport Research Partners.
Safran said the crashes and pandemic slowed down production lines. Additionally, natural attrition shrank Spirit’s labor force. Then, when demand for airplanes picked back up, Spirit was forced to rehire “massive numbers” of people during what turned out to be a historic labor shortage.
“[Spirit’s] policies and procedures were geared towards a much more sophisticated worker than they were able to hire,” Safran said. “Boeing felt, ‘Look, the name of the game now is vertical integration, and we should be doing more of that.'”
As a result, Boeing decided to bring Spirit back under its wing.
Making its own fuselages could eat into profits, but it will also give Boeing more control over a high-precision process, said Vijay Pandiarajan at the University of Michigan’s Ross School of Business. Pandiarajan said being in control is especially important for a company that’s losing public confidence.
“The specifications are extremely tight, so you need to exercise a lot of control,” Pandiarajan said.
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