BOEING PLAN TO BUY SPIRIT COMPLICATED BY AIRBUS-LINKED FACTORIES

(Bloomberg) -- Boeing Co.’s plan to buy back supplier Spirit AeroSystems Holdings Inc. has become mired in protracted discussions over pricing for factories that make components for Airbus SE, complicating the US planemaker’s efforts to gain tighter control over manufacturing quality.

Since Boeing first confirmed its intention in early March to re-integrate Spirit, talks have only progressed slowly and don’t appear anywhere close to completion, according to people close to the matter. Untangling Spirit is complicated because the company makes parts not just for Boeing, but also for arch-rival Airbus as well as manufacturers including Northrop Grumman Corp., said the people, who asked to not be identified as the negotiations are confidential.

The US planemaker had sought to quickly forge a deal with its struggling former aerostructures unit, which builds 737 Max fuselages, as it works to improve quality under the close scrutiny of federal regulators. Buying back Spirit, which Boeing spun off in 2005, would mark a dramatic step to stabilize its supply chain after a series of high-profile lapses.

Talks between the parties have not broken down, and the companies involved remain willing to reach an accord, the people said. Boeing declined to comment. Airbus said it’s in “early stage discussions on a variety of options, including acquiring from Spirit Aerosystems some of the activities that they carry out for Airbus.” The company declined further comment on the status of negotiations.

“As negotiations continue, our focus remains on providing our customers with the highest-quality product,” Spirit spokesman Joe Buccino said.

Spirit fell as much as 3.5% following the Bloomberg report, before paring losses and trading 1.4% lower. Boeing was little changed during the morning trading session in New York.

Analysts will seek more details during a conference call with Boeing executives when the company reports earnings on Wednesday, including how the cash-strapped company intends to finance the deal. Reintegrating its former Wichita, Kansas hub won’t resolve the US manufacturer’s near-term crisis, but could prove beneficial over the longer term, Ken Herbert, analyst with RBC Capital Markets, said in an April 19 note.

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There’s a silver lining for Boeing if the transaction doesn’t close until late this year, when it should return to generating cash, said Robert Spingarn of Melius Research. He estimates the US planemaker will wind up paying around $5 billion for Spirit. Given Boeing’s expected cash burn of at least $4 billion during the first quarter, “it’s better that it’s not closing right now,” he said in an interview.

While it negotiates with Boeing, Spirit has been looking to spin off a handful of manufacturing complexes to Airbus, which accounts for about 19% of the supplier’s sales. Neither planemaker wants Boeing to wind up owning factories that build crucial structural components for Airbus’s A220, A320 and A350 aircraft, the people said.

But Airbus appears to be in no rush to strike a quick deal for the sites, which would expand the holdings of its aerostructures division, some of the people said. Among the Toulouse, France-based company’s concerns: the manufacturer would have to shoulder any operating losses at plants like Spirit’s composite wing factory in Belfast, Ireland, adding to the financial drain from the A220 program.

Given the complexity of reaching an agreement with its biggest rival, Boeing is considering moving forward with the Spirit takeover without the Airbus deal in place, one of the people said.

Here’s a look at some programs outside of Boeing in which Spirit is involved:

Airbus

A220: Spirit assembles the composite wings on the A220 narrowbody at its facility in Belfast, Northern Ireland. It also manufactures fuselage sections for the jet.A320: Airbus’s best-selling A320 features wing elements made by Spirit at its Prestwick facility in Scotland. Spirit acquired the Prestwick site — which also made wing components for the discontinued A380 super-jumbo — from BAE Systems Plc in 2006.A350: The European planemaker’s advanced A350 widebody jet has fuselage and wing panels supplied by Spirit’s Kinston, North Carolina facility. Its Saint-Nazaire, France plant assembles fuselage sections from the panels supplied by the Kinston plant.

Bombardier

Challenger 350/650: The center fuselage of the business jet is made at Spirit’s Belfast facility, while the supplier’s Casablanca site assembles emergency doors for the Challenger 350.Global 5500/6500: Spirit’s Belfast site manufactures the forward fuselage, engine nacelles, horizontal stabilizer and other components. The Casablanca site assembles the floors for the models.Global 7500: Spirit’s Belfast site makes the composite horizontal stabilizer for the Global 7500

Northrop Grumman

B-21 Raider: Spirit is one of six so-called tier 1 suppliers to Northrop Grumman’s B-21 long-range bomber. The specific work it does on the wedge-shaped stealth bomber has not been identified.

--With assistance from Anthony Palazzo.

(Updates with shares, analyst’s quote)