Analysts: Boeing purchase of Spirit could strengthen defense business

Boeing’s potential acquisition of airframe manufacturer Spirit AeroSystems could help stabilize its defense business and give it a stronger hand in bidding on future military aircraft programs, analysts said Monday.

Boeing and Spirit confirmed Friday they were in talks about a possible acquisition, following a Wall Street Journal report. The move, were it to happen, would reunite the two companies after nearly 20 years apart — and would come after a series of troubles with Boeing’s 737 MAX commercial aircraft, of which Spirit is a supplier.

“It’s kind of ‘back to the future,’ right?” defense industry analyst Byron Callan told Defense News on Monday. “You’re bringing back a part of Boeing that has really been” separate since 2005.

That was the year Boeing spun off what would become Spirit, when it sold its airframe manufacturing operations in Wichita, Kansas, and Oklahoma to a private equity firm.

Spirit AeroSystems is now a manufacturer and supplier for structural components that go into military aircraft such as the Boeing-made E-7 Wedgetail and P-8 Poseidon, the B-21 Raider stealth bomber built by Northrop Grumman, Bell’s V-280 Valor, as well as struts and nacelles for the B-52H Stratofortress. Its role in the defense industry is growing, with defense revenues reaching nearly $650 million in 2022 and a goal of hitting $1 billion by 2025.

Boeing on March 1 confirmed the potential acquisition and said the reintegration “would further strengthen aviation safety, improve quality and serve the interests of our customers, employees, and shareholders.”

The troubles with the line of MAX aircraft — most recently, the January blowout of a door on an Alaska Airlines flight — have generated new concern over Boeing and Spirit’s quality control.

But Callan believes there’s likely more motivating this possible acquisition, such as Boeing’s desire to keep a closer eye on its supply chain and manage rates of aircraft production, as well as address quality issues that have cascading effects.

“You don’t go buy a company because of one specific incident,” Callan said. “This is probably a broader set of instances. … They’ve recognized what happens when there are quality issues, delays, all the other things that were tripping up Spirit, that fundamentally impacts their ability to do business.”

Bryan Clark, a senior fellow at the Hudson Institute, said Boeing could use its desire to increase quality oversight and exercise more control over its supply chain to support its case that federal regulators should approve a potential deal.

“That’s been somewhat problematic, especially now in light of these quality control issues, which arguably go back to Spirit in a lot of ways,” Clark said — though he also noted that “we’ve seen plenty of examples where Boeing’s quality controls” have fallen short.

Clark said a Boeing-Spirit acquisition would be an overall — albeit muted — benefit for the defense industry, by making it easier to improve their production facilities and methods.

Spirit has “started to use some new production techniques like additive manufacturing; they have a lot of experience with composites from the 787 Dreamliner,” Clark said. “Spirit’s got a lot of potential to be able to turn into this pretty high-tech supplier to a variety of programs. It’s just hard to do that as a standalone company, because you’re not dealing with a high-volume or high margin business.”

Acquiring Spirit would also “help stabilize Boeing in the defense space,” by allowing the company to contribute to more defense programs without being a prime contractor.

“As the DOD starts to shrink down the number of mainline manned aircraft programs … that means fewer and fewer opportunities for Boeing, Lockheed and Northrop to become the prime,” Clark said. “This way Boeing could be … through Spirit, a contributor to programs that they otherwise could have been locked out of.”

In the near term, Callan said, acquiring Spirit would give Boeing a piece of programs that company works on, such as the B-21 Raider stealth bomber — which Boeing lost to Northrop Grumman in 2015 — and the Bell V-280 Valor, the Army’s Future Long-Range Assault Aircraft.

Even if Boeing moves forward on its potential acquisition of Spirit, Callan said, it likely won’t boost Boeing on programs already in the works or nearing contract awards, such as the Air Force’s Next Generation Air Dominance future fighter platform.

But when the military moves forward on subsequent aircraft programs — such as a future Air Force mobility aircraft to succeed the C-17 Globemaster or C-130 Hercules, or the replacement for the Army’s CH-47 Chinook — having Spirit in-house could bolster Boeing’s position, he added.

Callan and Clark said they doubt the Pentagon or government would object to a potential Boeing acquisition of Spirit, even though federal regulators objected to Lockheed Martin’s attempted acquisition of solid rocket motor manufacturer Aerojet Rocketdyne. Unlike the exceptionally narrow solid rocket motor market, they said, there are multiple air frame manufacturers to sustain competition if Boeing took over Spirit.

Spirit has somewhat branched out, Clark said, such as by becoming a supplier to Northrop Grumman for the B-21 and working with Airbus. But most of its business is still with Boeing, he said, and in many ways, “they stayed in Boeing’s shadow.”

Callan said the acquisition may be a boon to Spirit’s president and chief executive, Pat Shanahan, who also formerly served as acting secretary of defense and was an executive at Boeing before that. While Boeing’s chief operating officer, Stephanie Pope, is seen by many as a potential successor to current Boeing CEO Dave Calhoun, Callan said Shanahan’s experience could make him another contender.

“He would put a very different flavor to what we’ve seen in recent years,” Callan said.

But the big question, Callan said, is whether these hoped-for improvements in supply management and quality control will materialize, if an acquisition happens. It all will depend on how Boeing chooses to manage Spirit’s culture, standards and workforce, he said.

“If it’s really the beginning of a rejuvenation of their safety focus on engineering and manufacturing — that clearly somewhere along the way they lost, so if this helps that would be good,” Callan said. “But I wouldn’t say, ‘Boeing buys Spirit, all the problems go away.’ It’s too soon to tell.”