Aerospace giant Boeing will reportedly soon reach a deal to buy Spirit AeroSystems Holdings. (ESP) .
It's a big deal for Boeing. (licensed in letters) because it will once again incorporate a key subcontractor for its 737 and other aircraft into its corporate network.
Boeing spun off the Wichita-based company in 2005, arguing that letting the business run on its own would be more efficient and profitable. But Spirit has been at or near the center of Boeing's quality control problems.
Reports late last week suggested the deal was close to being finalized, but no details were available, especially on price.
Related: New Boeing whistleblower alleges company lost defective plane parts
It's complicated by Spirit's work manufacturing fuselages for Boeing's archrival Airbus SE. (EADSF) from a plant in Belfast, Northern Ireland. There is speculation that Airbus will buy the Belfast business.
However, the reports were good enough to push Spirit shares up 14% for the week, allowing the stock to show a 5.6% gain for the year.
Compared to Boeing, that's fantastic.
Boeing stock is down 32% in 2024, thanks to one strange event after another this year alone. The stock has fallen 60% in the last five years.
Boeing's bad and no good year
This year of crisis began in January when a plug on an Alaska Airlines plane (ALK) The plane exploded just after taking off from Portland, Oregon, toward Ontario, California. Miraculously, the pilots were able to bring the plane back to Portland with everyone alive.
Later, there were revelations that the plug had not been properly secured, part of years of manufacturing problems.
It later emerged that records on the construction progress of Boeing's 787 Dreamliner had been falsified and that the fasteners were installed incorrectly.
Production delays have affected growth plans for the global airline industry and forced schedule reductions in many markets. This affects airlines such as Alaska and Southwest Airlines. (LUV) that only 737 planes fly.
Alaska, United Airlines (UAL) and others are thinking of buying Airbus aircraft.
Dave Calhoun, now CEO, announced he will leave at the end of the year. Recent news reports suggest that recruiters looking to replace Calhoun are struggling to find viable candidates.
Wall Street has pushed for General Electric Aerospace CEO Larry Culp (G.E.) , which is a major jet engine manufacturer. Culp, who broke up GE and unlocked billions in value for shareholders, has declined.
And all of this came after two 737-Max planes crashed in 2018 and 2019, killing everyone on board. All 737-Maxes were grounded for 20 months. A CEO resigned, along with most of the board members.
Optimists believe Boeing will eventually get things right. It has an order book valued at $529 billion, including its defense business.
The commercial aircraft portfolio amounts to more than 5,600 aircraft valued at $448 billion.
But change may take time, even if the deal with Spirit goes through.
More about Boeing
- Can Boeing stabilize here or is there more risk?
- Boeing sinks deeper into trouble over 737 Max mishaps
- Boeing whistleblower says he received 'physical threats' over safety concerns
Should we buy the shares?
Only if you expect to wait a long time. Buying Boeing is a leap of faith because of its trouble and because the company isn't even paying dividends now. It has reported losses since 2019 that have exceeded 32 billion dollars.
The four big reasons that force any buyer of Boeing shares to be patient:
The figures are overwhelming. The company is expected to lose $1.09 in the second quarter, down from a loss of 82 cents per share a year ago. That's the average estimate among 22 analysts. The lowest estimate is $2.19. Revenue of about $18 billion is expected, up from $19.7 billion a year ago.
Operational issues across Boeing are complex and not fully understood. Case in point: Boeing's Starliner shuttle vehicle is stuck on the International Space Station as NASA and Boeing try to understand leaks in the vehicle's propulsion system.
The leadership is in crisis. Calhoun will leave in six months and no successor has yet been named. A civil war is raging between the financial officials who have controlled the company since 1997 and almost everyone else. The money guys want to make Wall Street happy and managed to push the stock price back up to $440, the highest price in 2019. Everyone else wants Boeing to make big airplanes.
Criminal liability for accidents remains open. Families of victims of the 2018 and 2019 crashes want criminal charges filed. There was a report from the New York Times that the Justice Department was not going to file criminal charges. It has been said again that the matter is still under review.
Why should anyone care?
The short answer is this: For years, Boeing was the largest American exporter and the largest manufacturer of commercial airplanes in the world. It has lost this last title to Airbus, and China has the ambition of offering a competitor to the 737, like the Brazilian Embraer.
Boeing's continued health is important to the national economy and a matter of national security. Boeing directly employs nearly 170,000 people. Spirit has another 18,000 workers. Thousands of subcontractors and their workers in the United States and elsewhere depend on Boeing.
Boeing invented modern jet travel in the 1950s with the 707. It was a key manufacturer of bombers in World War II and, of course, the iconic B-52.
It has a history that would be impossible to replace.
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