Boeing eyes Spirit AeroSystems buyout amid safety concerns

Boeing (BA) has confirmed discussions to reacquire its supplier Spirit AeroSystems (SPR), as the company works to improve the safety of its 737 MAX aircraft. This comes after Boeing faces a lawsuit related to a safety incident that occurred on an Alaska Airlines flight in January. Tony Bancroft, Portfolio Manager of the Gabelli Commercial Aerospace & Defense ETF (GCAD), joins Yahoo Finance Live to discuss the potential deal's implications.

Bancroft says the acquisition "makes sense" long-term, though there is no immediate "silver bullet." He notes integration challenges will likely arise as the companies combine cultures and workflows. However, with Boeing comprising 80% of Spirit's current sales, Bancroft suggests that bringing manufacturing in-house to enhance oversight is "a natural way [for Boeing] to do business."

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Editor's note: This article was written by Angel Smith

Video Transcript

SEANA SMITH: Well, Boeing is in talks about a potential reacquisition of Spirit AeroSystems. It's a key supplier for the 737 Max jet. Now, this potential deal comes as Boeing faces a lawsuit from passengers who were on the Alaska Airlines flight when a section of that Boeing 737 MAX 9 jet blew out shortly following takeoff.

We want to bring in Tony Bancroft. He's Gabelli Funds commercial aerospace and defense ETF portfolio manager here to join. Talk to us a little bit more about what this would mean here for Boeing, Spirit AeroSystems. Excuse me there. Tony, let's talk about why this would make sense. Does this make sense for Boeing to potentially reacquire Spirit AeroSystems?

TONY BANCROFT: Yeah. Thanks for having me back, Seana. Yeah, I think it does make sense in the long term. I think near term, there's going to be no silver bullet. You're going to see some probably integration hiccups and fits and starts as the two large entities try to combine like any large merger. But I think over the long term, these-- before the pandemic, 80% of Spirit's sales were to Boeing. So it's essentially an entity of Boeing. And obviously, it was an entity of Boeing before 2004.

And I think taking out some of traveled work, the transport from Wichita to Renton of the fuselages, and streamlining the businesses, getting a culture together, and the synergies that you can probability of getting from those, it's going to be a long term-- I think there's a lot of opportunities to combine their operations and get some more efficiencies and more opportunities for those two companies. So I think in the long term, we're going to see this be a good thing for Boeing.

BRAD SMITH: Does this ultimately remediate some of the quality assurance issues that have come to light and that investors still have questions about within the broader manufacturing process here?

TONY BANCROFT: Yeah, that's a good point, Brad. I mean, I think the impetus for this probably was, for all intents and purposes, was the recent incident. What they released from the initial NTSB report was that there was some rework going on from the Spirit plant at the Boeing facility. And I think there's probably a thought process. And I think the FAA administrator, Whittaker probably alluded to that in behind the scene talks with Boeing that you sort of own the jet from soup to nuts.

And I think Boeing probably took that to heart. And it just makes sense. Imagine if GM were to have a third party build this chassis versus-- in Flint, Michigan or essentially any other company, large manufacturing company. I think it's just a natural way to do business to own such a large part of your manufacturing process.