Boeing Nears Plane-Parts Deal With Supplier Spirit AeroSystems
August 02 2017 - 2:01PM
Dow Jones News
By Robert Wall and Doug Cameron
Boeing Co. is close to settling one of its thorniest supplier
issues by provisionally agreeing on a discount-promising, long-term
deal for plane parts with Spirit AeroSystems Holdings Inc.
Negotiations between Boeing, the world's No. 1 plane maker by
deliveries, and Spirit, its biggest supplier, have run for years
and been contentious at times as the two sides sparred over parts
pricing. Spirit in April said there was a "significant" gap on
terms.
On Wednesday, Boeing said the breakthrough was an "important
step forward" in its so-called Partnering for Success program in
which the plane maker has asked suppliers for concessions in return
for work. Boeing in recent weeks struck similar agreements with
suppliers Kawasaki Heavy Industries and Triumph Group Inc.
The effort is aimed at helping the Chicago-based plane maker
compete against European rival Airbus SE and to meet a commitment
to boost earnings margins to the midteens from around 10% now.
Spirit Chief Executive Officer Tom Gentile said the memorandum
of agreement "reduces much uncertainty that has long existed with
our largest customer." Talks since April "ebbed and flowed," he
said, and gained traction in recent weeks. Final details should be
ironed out by October and provide for a "healthier relationship"
going forward, Mr. Gentile said.
Shares in Spirit, which was spun off from Boeing's Wichita,
Kan., and Tulsa, Okla., units in 2005, surged 16% in recent trading
as investors breathed a sigh of relief that a nagging concern over
future profit and cash flow was nearing an end. Boeing shares were
about flat.
The deal covers production through 2022 of major structures on
Boeing airliners including the ubiquitous 737 single-aisle plane
and the 787 Dreamliner long-range jet, Spirit said.
The supplier agreed to price concessions at predetermined points
on two larger Dreamliner versions, the 787-9 and 787-10. Those
models of the composite plane weren't covered under an earlier
accord. In return, the deal will cover production of more of the
planes. Boeing and Spirit had a deal covering production of 1,003
Dreamliners. That would be expanded to 1,300 Dreamliners with
provisions for up to 1,405 planes.
Cutting costs to build Dreamliners is critical to Boeing and its
future earnings as it tries to shed more than $26 billion in
deferred production costs on the program.
The accord comes as Boeing considers developing a brand new
airliner. The plane maker has signaled it may not work with
suppliers that don't accommodate its needs for greater efficiency.
Mr. Gentile said Spirit has no guarantees it would be on the new
plane if it gets built, but "what this agreement does is it enables
us to compete."
The contract terms forced Spirit to recognize a $353 million
forward loss through 2022 on the 787 program. Even so, the company
boosted guidance for 2017 free cash flow by $50 million to a range
of $500 million to $550 million. It also raised its full-year
profit outlook for up to $5.25 adjusted earnings per share.
Boeing has billed its Partnering for Success program as more
than just a cost-cutting exercise and said it would work with
partners to boost efficiency. Spirit said it had agreed with Boeing
to jointly study advanced plane parts and manufacturing processes.
The agreement also provides for joint 787 cost-reduction
initiatives with financial incentives and productivity discounts on
the 737, where Spirit builds the fuselage, contingent on volume
commitments.
Write to Robert Wall at robert.wall@wsj.com and Doug Cameron at
doug.cameron@wsj.com
(END) Dow Jones Newswires
August 02, 2017 13:46 ET (17:46 GMT)
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