On July 1, 2024, Boeing reached a deal to buy Spirit AeroSystems.
Spirit, which makes fuselages and other airframe components, was created when Boeing sold some of its factories in 2005 in a push to focus on final assembly. The structure of this blog is not to burden readers with details, but a few money key points would be informative.
In 1997, Boeing merged with McDonnell Douglas (MD), a rival aircraft manufacturer. From 2003-2005, Harry Stonecipher, formerly of MD was CEO of Boeing. In pursue of increased return on net assets, the fuselage manufacturing was sold to Onex Corporation, a Canadian private equity firm, in June 2005 for enterprise value $1.2 billion: $900 million in cash and $300 million in assumption of debt. The debt-to-equity ratio was 0.33:1, a very healthy structure. This became Spirit AeroSystems.
Onex sold its final shares of Spirit in 2014 and by that time, it had made $3.2 billion on its ownership of Spirit.
During the period of independence from Boeing, Spirit expanded its business. Like any business, it has its ups and downs.
Finally, in July 2024, to remedy Spirit’s lapse in quality control that led to the Alaska Airline’s accident in January, Boeing clinched the deal to acquire Spirit as mentioned above. To reach this deal, Spirit had to pay Airbus $559 million to take over its unprofitable European operation which made fuselage for Airbus. Boeing made an all-stock transaction, worth $4.7 billion in equity and $8.3 billion in enterprise value included the assumption of Spirit’s debt. It means Spirit had a debt-to-equity ratio of 0.77 to 1.
Readers can reach their own conclusion on the wisdom of these deals.
For your information:
Onex is a private equity firm listed on Toronto Stock Exchange, with CA$49.6 billion of assets under management as of Dec 2023.
The largest rivate equity firms manage investment capital obtained from institutional investors and high-net-worth individuals to acquire ownership of companies through variety of strategies.
The largest five are listed below:
1) The Blackstone Group Inc, with $941 billion assets under management. (AUM)
2) KKR & Co. Inc, with $479 billion AUM
3) CVC Capital Partners with $127 billion AUM
4) The Carlyle Group Inc $376 billion AUM
5) Thoma Bravo with $114 billion AUM
These firms are hugely powerful and run by smart financiers.
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