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Enilria - Boeing Bought Spirit Aero for $8B, Worth Zero
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Boeing paid $8.4 billion for troubled supplier Spirit AeroSystems. The deal closed in December. The WSJ has noted that Boeing now admits the company was worth less than nothing.
Spirit was at the center of quality control problems that bedeviled Boeing and resulted in increased oversight from the FAA and Congress. Spirit AeroSystems was implicated and shared the blame for the Alaska Airlines Flight 1282 door plug blowout, alongside Boeing.
As the supplier that originally manufactured and assembled the 737 MAX fuselage, Spirit AeroSystems was flagged for severe and persistent quality control defects. However, the specific panel involved in the Alaska Airlines blowout had to be opened up later due to damaged rivets initially delivered by Spirit. The ultimate breakdown occurred at Boeing's assembly facility. Boeing workers opened the door plug to fix Spirit's rivet issues but failed to reinstall the four critical locking bolts before delivering the aircraft.
Regardless, the incident and subsequent firestorm led to Boeing acquiring Spirit Aero to take control of the company amid a growing list of quality lapses. Spirit had previously been a part of Boeing.
With the acquisition complete, accountants have now been forced to fully validate the assets and liabilities of Spirit, and wow is it bad. After doing the math, the Boeing accountants assigned a staggering $10.3 billion in goodwill to the purchase. That means that Boeing paid $8.4 billion for a business with a paper value of -$1.9 billion. That’s because the assets of Spirit Aero were vastly exceeded by liabilities coupled with losses at the ongoing business that cannot be avoided.
Both the ongoing losses and the full size of the liabilities were also a surprise to Boeing. In an accounting update, Boeing said liabilities that weren’t identified at the time of the acquisition were later found and that contracts entered into by Spirit where “the terms of the contract deviated from the terms that a market participant could have achieved” changed future earnings expectations. That means the contracts should have been known to result in losses, but Spirit inexplicably entered into them anyway.
Boeing itself has been unprofitable lately, but the drag from Spirit will continue to be a problem. Ironically Boeing bought Spirit Aero to head of growing ill-will due to quality problems, and now the company only has any value as goodwill.
Boeing paid $8.4 billion for troubled supplier Spirit AeroSystems. The deal closed in December. The WSJ has noted that Boeing now admits the company was worth less than nothing.
Spirit was at the center of quality control problems that bedeviled Boeing and resulted in increased oversight from the FAA and Congress. Spirit AeroSystems was implicated and shared the blame for the Alaska Airlines Flight 1282 door plug blowout, alongside Boeing.
As the supplier that originally manufactured and assembled the 737 MAX fuselage, Spirit AeroSystems was flagged for severe and persistent quality control defects. However, the specific panel involved in the Alaska Airlines blowout had to be opened up later due to damaged rivets initially delivered by Spirit. The ultimate breakdown occurred at Boeing's assembly facility. Boeing workers opened the door plug to fix Spirit's rivet issues but failed to reinstall the four critical locking bolts before delivering the aircraft.
Regardless, the incident and subsequent firestorm led to Boeing acquiring Spirit Aero to take control of the company amid a growing list of quality lapses. Spirit had previously been a part of Boeing.
With the acquisition complete, accountants have now been forced to fully validate the assets and liabilities of Spirit, and wow is it bad. After doing the math, the Boeing accountants assigned a staggering $10.3 billion in goodwill to the purchase. That means that Boeing paid $8.4 billion for a business with a paper value of -$1.9 billion. That’s because the assets of Spirit Aero were vastly exceeded by liabilities coupled with losses at the ongoing business that cannot be avoided.
Both the ongoing losses and the full size of the liabilities were also a surprise to Boeing. In an accounting update, Boeing said liabilities that weren’t identified at the time of the acquisition were later found and that contracts entered into by Spirit where “the terms of the contract deviated from the terms that a market participant could have achieved” changed future earnings expectations. That means the contracts should have been known to result in losses, but Spirit inexplicably entered into them anyway.
Boeing itself has been unprofitable lately, but the drag from Spirit will continue to be a problem. Ironically Boeing bought Spirit Aero to head of growing ill-will due to quality problems, and now the company only has any value as goodwill.
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