It appears that Boeing is about to acquire Spirit AeroSystems , the troubled jet-fuselage supplier that has been at the center of quality issues affecting 737 MAX jets, reports The Wall Street Journal (March 2, 2024). Spirit, which makes 737 and 787 fuselages and other major components, was created when Boeing decided to outsource and sold some of its factories 2 decades ago. Boeing now accounts for nearly 2/3 of Spirit’s sales, and cannot afford to have Spirit fail.
But Boeing engineers warned back in 2001 that the company risked losing control of its manufacturing processes and hollowing out its internal capabilities. The move to reacquire Spirit comes after a long series of quality problems with the fuselage sections it supplies. Spirit parts frequently arrive at the factory with defects. Those caused repeated delivery pauses at Boeing’s final assembly plants.
The move concedes that the strategy went much too far and has damaged Boeing. Last year, Boeing sent “armies of people,” its CEO stated, to Wichita to help Spirit get its manufacturing processes under control. When asked about Boeing’s outsourcing strategy, he recently told CNBC, “Did it go too far? Yeah, it probably did. But now it’s here and now. And now, I’ve got to deal with it.”
A deal would be a strategic reversal. Boeing sold the Wichita plant in a push to focus on final assembly. Acquiring Spirit would leave Boeing with the task of cleaning up its operations at the same time that Boeing’s own quality-control systems have been questioned by regulators. The FAA has just given Boeing 90 days to come up with a quality-improvement plan.
Boeing in the past few years had done everything short of acquiring Spirit to gain control over the supplier. Spirit has lost an average of more than $1 million per airplane on the nearly 1,200 fuselage sections it built for the 787, a cumulative loss totaling $1.4 billion.
Chapter 2 in your Heizer/Render/Munson text discusses the Theory of Competitive Advantage and the risks of outsourcing on pages 44-47.
Classroom discussion questions:
- Describe the risks of outsourcing in general, and then the particular risks Boeing faced.
- What are the risks Boeing faces as it reacquires Spirit?
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