Buyer and Target Overview
The Boeing Company
The Boeing Company is an American multinational corporation that designs, manufactures, and sells airplanes, rotorcraft, rockets, satellites, and missiles. Operating worldwide, Boeing is a significant player in the aerospace and defense industry.
Boeing’s core Business Areas are:
- The design, manufacturing, and assembling of aerospace vehicles for commercial and defense purposes (4th largest global defense contractor in 2022 by revenue)
- Product support, maintenance, training, and analytics services for the commercial and defense industries
- Financing solutions, leasing, and financing options for customers purchasing Boeing products
- R&D in emerging technologies focused on autonomous systems, sustainable aviation fuels (SAF), artificial intelligence, and data analytics
The American company, founded in 1916, has seen an extensive expansion in the last century, including a significant merger with McDonnell Douglass in 1997 (then a prominent American aerospace manufacturing corporation and defense contractor). Today, the company is committed to sustainability, innovation, and corporate responsibility efforts.
The company employs approximately 171,000 people globally and operates in over 65 countries to support its three main business segments: Commercial Aircraft, Defense, Space and Security, and Global Services. Since 2020, the company has faced several layoffs, including a 10% reduction in workforce in 2024 due to financial pressures, regulatory challenges, and production slowdowns.
Source: The Boeing Company
Boeing’s strategic priorities include:
- Autonomous Technologies: The firm has invested significant amounts in unmanned systems for civil and defense applications. The Loyal Wingman is a prime example, an AI-powered unmanned combat air vehicle (UCAV).
- Space Exploration: Boeing plays a central role in space exploration. The company contributes to projects like Space Launch Systems and satellite constellations in partnership with NASA and Blue Origin.
In FY2023, Boeing reported strong revenue growth, reaching $77.8bn U.S.D (FY2022 was $66.6bn). However, the company faced a net operating loss of $773m in FY2023, though analysts see this as an improvement from the previous year loss of $3.5bn Boeing’s return on Assets (ROA) and return on invested capital remained negative in 2023, at -2.67% and -7.00% respectively, as the company struggles to be profitable.
The Boeing Company generated an operating cash flow of $5.96bn, a substantial increase compared to the $3.5bn in FY2022. This reflects improvements in operational efficiencies, alignment of production with demand, and general expansion of operations. The company’s total backlog reached $520bn U.S.D, signaling strong demand from commercial and defense aerospace industries.
Following the machinist strikes in 2023 and 2024 that disrupted key supply chains and production lines, Boeing expects short-term operational challenges, including delays in delivery of the 737 MAX and 787 Dreamliner models, which are major revenue drivers. The company’s stock price reflects the production delays and workforce layoffs.
Source: The Boeing Company
Spirit AeroSystems
Founded in 2005 as a spinoff from Boeing, Spirit AeroSystems Holdings, Inc., is a leading American manufacturer specializing in aerostructures for commercial and defense aerospace industries. It is one of the largest independent suppliers of aerospace components globally, supporting major aircraft manufacturers like Boeing and Airbus.
Spirit AeroSystems’ Core Business Areas:
- Aerospace components manufacturing specialized in fuselage sections, wing components, and structural assemblies
- Aftermarket services, including maintenance repair and overhaul services and fleet management solutions
- Development and production of advanced composite materials, lightweight and aluminum structures
- R&D pioneering in next-gen aerospace technologies, including additive manufacturing, advanced composites, and digital design.
Spirit AeroSystems employs approximately 17,000 people across its operations in over ten countries. It focuses on key technologies, such as digital twins, automation, and industry 4.0 practices, to enhance production efficiency.
Spirit AeroSystems’ strategic focus areas include:
- Composite manufacturing: it is a global leader in lightweight, high-performance, and durable materials for modern aircraft.
- Defence and Space exploration with the U.S. Department of Defence and other contractors on platforms like the B-21 Raider bomber and advanced missile systems.
Looking at FY2023, Spirit AeroSystems reported $6.4bn in revenue (up from the $5.3bn U.S.D in FY 2022, reflecting increasing demand for narrow-body commercial aircraft components). Despite the growth, the company recorded an operating loss of $495m U.S.D due to criticalities in the supply chain costs and labor disruptions. Nonetheless, compared to previous years’ negative results, the company turned the operating cash flow positive to $150m U.S.D. Return on assets (ROA) and Return on invested capital (ROI) remain negative at -3.5% and -6.2% respectively, reflecting struggles with production costs and margin pressures.
Persistent issues from the 2023 and 2024 machinist strikes have delayed production schedules, particularly for Boeing’s 737 MAX components, a major source of revenue for Spirit. Moreover, inflationary pressures on raw materials and rising labour costs continue to make profitability difficult. However, the company’s total backlog reached $43bn in 2023, signalling strong demand in the aerospace industry.
Spirit AeroSystem aims to improve operational efficiency by investing in cost-saving and automation initiatives. However, short-term pressures, including ongoing labour negotiations and supply chain constraints, remain critical risks that have impacted the company’s overall economic performance over the last period.
Source: Spirit AeroSystems Holdings, Inc.
Market Overview
The Impacts of Strategic Realignment: Aeroplane Industries’ Pending Acquisition of Spirit AeroSystems by Boeing
The $8.3bn deal from Boeing to purchase Spirit AeroSystems is a significant development that might revolutionize the defense and aerospace sectors. Given the anticipated substantial consequences on the two businesses, their stakeholders, and the larger aerospace sector, a thorough examination is necessary even if the merger is still in the planning stages. To completely comprehend the elements affecting this game-changing choice, it is crucial to examine the buyer, Boeing, and the seller, Spirit AeroSystems, and the strategic objectives and market dynamics underlying this merger. Disruptive events like COVID-19, which affected the world economy, quality issues, and delays in several supply sectors, have shaken the aircraft industry in recent years. The commercial aircraft segment, damaged by the 737 MAX disaster, which cost Boeing over $20bn in losses and ongoing supply chain problems, has been the most negatively affected.
Given this and the business’ status, Boeing’s acquisition of Spirit AeroSystems seems like a sensible defensive response to issues facing the whole sector. This purchase would optimize supply chain management operations, enhance production processes, and accelerate advancements in crucial fields like additive manufacturing and composite materials. With the global aircraft market expected to grow at a 4.2% CAGR through 2030, this purchase might revolutionize the aerospace industry by setting new benchmarks for resilience and innovation since it prioritizes quality improvement and delivery timelines.
Spirit AeroSystems Overview
Spirit AeroSystems Company’s headquarters are in Wichita, Kansas. The company specializes in the manufacturing of commercial and military aircraft aerostructures. Since its spinoff in 2005, the firm has maintained strong relationships with Boeing, historically accounting for up to 70% of its annual revenues.
The aerospace supply chain has been under constant financial duress in recent years, which is explained by falling production rates, shifting inventory levels, and higher operating costs. These problems highlight the need for better industry collaboration and use. One example of the continuous trend of mergers and acquisitions in the aerospace industry to lower financial exposure and boost efficiency is the forthcoming Spirit AeroSystems buyout.
Spirit’s recent contracts for the B-21 Raider stealth bomber and other military aircraft show how much the aerospace sector needs to diversify. These programs, which are part of the U.S. Department of Defense’s $185bn aircraft procurement budget, helps businesses prepare for rising demand in the military industry and new technology while reducing reliance on commercial aircraft.
This analysis underscores how the pending acquisition addresses immediate challenges and positions both companies to thrive in a rapidly evolving aerospace market.
Supply Chain Accountability and Performance
The aerospace sector has been experiencing significant losses in supply chain management, with increasing instances of extended lead times, quality concerns, and disruptions caused by the pandemic and other global events. Addressing these issues is now becoming a focus for manufacturers and suppliers, as the adequacy and quality of product delivery determine the level of customer expectations and production goals. Industry players increasingly turn to consolidation and closer integration within the supply chain to streamline operations and improve performance, setting a foundation for long-term industry stability. This approach aligns with trends where supply chain optimization could save the aerospace sector billions annually, reducing inefficiencies and fostering resilience.
Fusion of Functionality and Technology
The aerospace sector is evolving as advanced technologies like composite materials and additive manufacturing are integrated into business production processes. These developments lower manufacturing costs and allow for the creation of next-generation aircraft that satisfy consumer demands. The global additive manufacturing market is predicted to reach a valuation of $19.3bn by 2026, demonstrating its growing influence on changing production paradigms. Many businesses in the sector are presently exploring methods to incorporate these technologies to remain competitive and pioneer fresh designs for both commercial and defense applications.
Defense Sector Offerings Stronger
The aerospace sector remains resilient, especially in defense, as firms develop new technologies to tackle upcoming global challenges. Some organizations are expanding their services to include both commercial and military options to reduce the cyclical variability of the aviation market. The U.S. defense budget for fiscal year 2024 allocated $315bn to aircraft-related expenditures, presenting significant opportunities for manufacturers. This strategy enhances competition among manufacturers when bidding for defense contracts and ensures safety from shocks during downturns in the commercial aviation sector.
Financial Stability Within the Sector
Financial pressures remain a persistent challenge for aerospace suppliers, with many dealing with decreased production rates, excess inventory, and liquidity issues. Acquisitions and strategic partnerships have become essential for maintaining financial stability, enabling businesses to manage short-term swings while pursuing long-term goals. Recent examples of how strategic alliances might increase operational efficiency include the $4.2bn agreement between Boeing and Embraer. Such efforts strengthen the industry’s overall supply chain resilience and provide individual players with a buffer against economic volatility.
Market Implications and Challenges
The success of the merger depends on how well the two companies integrate. According to industry reports, cultural integration challenges have been identified as a cause of the failure of 30% of mergers, making this component critical to the transaction’s success. Gaining regulatory permission presents another obstacle, especially as antitrust regulators are likely to focus on the transaction to ensure fair competition in the aerospace supply chain. All indications are that, unlike other recent, more contentious mergers in the aircraft business, Boeing and Spirit will avoid such challenges in this transaction. They mention the availability of alternative suppliers and the merger’s capacity to ease current supply chain issues as key considerations. For example, industry participants have recently observed that the integration of capabilities proposed by this acquisition complements the measures taken to address supply chain challenges in the aerospace industry, previously characterized by long lead times and poor service delivery.
Indicative Valuation, CCA and PTA
- Methodologies
We employed a combination of methodologies to value Spirit AeroSystems and comment on the acquisition price paid by Boeing.
Comparable Company Analysis (CCA): We identified a peer group of publicly traded companies with similar business profiles and financial characteristics. Given that the transaction is a step in Boeing’s reorganization plan, we relied more heavily on this methodology, which includes making a key component of its manufacturing process an “in-house” function once again and not a typical acquisition.
Precedent Transaction Analysis (PTA): We looked at three comparable M&A transactions in the A&D industry in the last 1.5 years involving similar companies to identify relevant premiums paid and valuation multiples.
- Valuation
Comparable Company Analysis
We selected a comparable universe of peer companies based on the following criteria:
- Geography of sales: companies with clients in North America and EMEA
- Business model: companies providing both primary and aftermarket services with the following criteria:
- Directly related to component manufacturing and servicing for commercial and military aircraft cockpits and fuselages;
- Relevant relationship with major players in the A&D industry, given Spirit’s privileged partnership with Boeing;
- Size: companies with comparable Revenue and Total Assets values, indicative of commercial maturity and the sufficient PP&E structure for such a capital-intensive industry.
Given Spirit’s negative EBITDA and Net Income, we opted for deploying EV/Revenue, Price-to-Sales, and EV/Total Asset multiples.
We estimated an implied share value in the $62.70-$94.79 range, applying a 1.9x median EV/Revenue multiple. This price represents a significant premium on its last closing price of $32.5 and a 68.32%—154.5% premium on the price agreed to by Boeing of $37.25. This price already represents a 30% premium on Spirit’s stock price on February 29th, 2024.
Two key elements could summarize the main reason for Spirit’s stock trading at such a discount compared to its implied valuation.
- The Boeing Gate: Spirit Aerosystems’ market performance is correlated with Boeing’s overall performance, and it has greatly suffered from Big Blue’s blunders in the quality assurance department. For example, on November 26th, 2019, the FAA revoked Boeing’s license to fly its 737 MAX in U.S. aerospace, and Spirit’s stock immediately pummeled.
- Financial trouble: Spirit has also financially performed poorly for the last 4 years. Earnings have been declining at an average annual rate of -37%, while the Aerospace & Defense industry saw earnings growing at 8.9% annually. Revenues have been growing at an average rate of 0.4% per year. Furthermore, Spirit has not produced positive Free Cash Flows since April 2020, with its latest filings disclosing $-1.322bn in free cash flow as of September 26th, 2024. This last element is key in explaining the discount at which the company’s stock trades, as it underlines Spirit’s risk profile. The company has accumulated enough debt to render its shareholder equity below zero and has less than a year’s cash runway.
Precedent Transaction Analysis
The precedent transaction analysis resulted in a median 3.1x EV/Revenue multiple, implying an Enterprise Value of $20.12bn, far above the agreed price. The limited number of transactions and Ansys’ transaction naturally influenced this outcome. PTAs also typically result in higher valuations, as past acquisitions include the control premium paid by the acquirer. Some limitations of the precedent transaction analysis concern Spirit’s uniqueness as a target. Previously spun off by Boeing, Spirit has largely concentrated revenues from its former parent and is entirely dependent on its performance.
Acquisition Rationale
Boeing’s potential acquisition of Spirit AeroSystems represents a strategic move aimed at addressing immediate operational challenges while positioning the company for long-term success in an increasingly competitive aerospace market. Spirit AeroSystems has long been a trusted partner, supplying critical components such as fuselages and wing structures for Boeing’s aircraft. However, its recent financial instability and quality issues have posed recurring risks to Boeing’s production processes. Bringing Spirit in-house offers an opportunity to strengthen supply chain reliability, enhance quality standards, and drive cost efficiencies. Below are the key motivations for this acquisition:
1. Strengthening Supply Chain Resilience
Boeing relies heavily on Spirit for key components of its most critical aircraft programs, such as the 737 MAX, which accounted for approximately 32% of Boeing’s total deliveries in FY2023, and the 787 Dreamliner. However, Spirit’s recent supply chain disruptions and labor strikes have caused production delays, resulting in estimated additional operating expenses of $2.6 billion over the past two fiscal years (Source: Boeing Financial Reports). By acquiring Spirit, Boeing can internalize these operations, mitigating the risk of future disruptions and ensuring greater control over schedules and costs.
2. Improving Product Quality
Quality assurance remains a priority in aerospace manufacturing, where even minor defects can have significant repercussions. Issues related to fuselage assembly defects in Spirit’s components contributed to the 2023 FAA directive that temporarily paused 737 MAX deliveries, leading to deferred revenue of approximately $1.4 billion for Boeing (Source: Wall Street Journal). Owning Spirit would allow Boeing to implement stricter quality control measures, ensuring consistency and reliability across its supply chain. This step reduces costly delays and enhances the safety of Boeing’s aircraft, restoring trust among customers and regulators alike.
3. Streamlining Operations and Cost Reduction
Spirit operates as a separate entity, creating duplication in processes and administrative overhead. According to internal estimates, integrating Spirit’s operations could generate annual savings of $350–$500 million through streamlined procurement, logistics, and production activities (Source: S&P Capital IQ). Consolidating these functions aligns with Boeing’s broader strategy of reducing supplier dependencies while improving overall production efficiency. Such savings would allow Boeing to reinvest in critical areas, including innovation and sustainability.
4. Stabilizing Spirit’s Financial Position
Spirit AeroSystems’ financial challenges, including $3.9 billion in net debt and a negative free cash flow of $1.3 billion as of Q3 FY2024, pose risks not only to its own stability but also to Boeing’s supply chain (Source: Spirit AeroSystems Financial Disclosures). By acquiring Spirit, Boeing can stabilize its operations, protecting 17,000 jobs while securing a reliable supply of essential components. This move ensures continuity and reduces the potential for further disruptions caused by Spirit’s financial struggles.
5. Accelerating Innovation
The integration of Spirit’s expertise in composite materials and additive manufacturing with Boeing’s advanced R&D capabilities has the potential to drive significant innovation. The global market for composite materials, a critical component of next-generation aircraft, is projected to reach $138 billion by 2028 (Source: Grand View Research). Spirit’s leadership in lightweight materials supports Boeing’s objectives of developing more fuel-efficient aircraft, which could reduce fuel consumption by 15–20% per aircraft (Source: Boeing Sustainability Report). By fostering closer collaboration, the combined entity could lead the industry in developing innovative and sustainable aerospace solutions.
6. Meeting Growing Market Demand
The aerospace industry is rebounding, with a projected 4.2% compound annual growth rate (CAGR) through 2030 (Source: Research and Markets). Boeing’s ability to scale production to meet surging demand—particularly for narrow-body aircraft driven by fleet renewals and the growth of low-cost carriers—depends on a stable supply chain. With a current order backlog valued at $520 billion, integrating Spirit’s operations could help Boeing accelerate delivery timelines, enabling it to capitalize on market opportunities while addressing existing bottlenecks.
7. Expanding Beyond Commercial Aviation
Spirit AeroSystems’ defense contracts, including its involvement in the B-21 Raider stealth bomber program, position it as a key player in military aerospace. With the U.S. Department of Defense allocating $185 billion for aircraft procurement in FY2024, this acquisition strengthens Boeing’s presence in the defense sector. Additionally, Spirit’s aftermarket services complement Boeing’s Global Services division, which generated $19 billion in revenue in FY2023, presenting significant opportunities to expand maintenance, repair, and overhaul (MRO) services.
Conclusion
This acquisition marks a pivotal step in Boeing’s strategy to secure its supply chain, improve operational efficiency, and drive innovation. By integrating Spirit AeroSystems, Boeing addresses immediate challenges and positions itself as a leader in the aerospace industry for decades to come. The deal represents a win-win scenario, stabilizing Spirit while unlocking opportunities for collaboration, growth, and developing next-generation aerospace solutions.
Sources: Financial Times, Factset, The Boeing Company, Spirit AeroSystems Holdings, Inc., S&P Capital IQ, MergerMarket,Wall street Journal, FlightGlobal
Authors: Tommaso Belotti, Tommaso Denaro, Aimed Beloued, Gianfranco Jr Sovernigo, Emilio Cornejo
Bocconi Students M&A Circle 