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  • Major Boeing 787 Supplier Takes a Financial Blow

    Today’s edition of The Wall Street Journal reports that Spirit AeroSystems Holdings Inc. , one of Boeing’s largest suppliers, has warned that it will take a $590 million charge related to work associated to building new wings and engine structures for the world’s newest civilian aircraft.

    A $184 million pretax charge is directly associated with contracts to make structures for the Boeing 787 Dreamliner aircraft. The remaining charges are associated with the manufacture of wings and engine parts for two new Gulfstream jet models sold by General Dynamics Corp. Spirit is scheduled to formally release operating results on November 1.

    The WSJ notes that yesterday, investors punished the stock, wiping out a third of Spirit’s previous market value.

    Spirit CEO Jeff Turner attributed the charges to the complexity of managing multiple new jet programs for different customers. In essence, the burden of component innovation has its limits when a supplier is dealing with more than one major OEM customer. In its reporting, the WSJ confirms that in the wake of the ongoing delays in the 787 build program, Boeing has re-negotiated new supply contracts with most of its suppliers, including Spirit. In an April commentary, Supply Chain Matters commented on the extraordinary response of Spirit in the wake of devastating tornadoes that significantly damaged its production facilities.

    The significance of this Spirit announcement is the timing, and the consequence, coming just after Boeing’s re-negotiation of supply contracts with suppliers related to the 787 program.  Boeing suppliers are now incurring visible financial charges related to protracted manufacturing capacity and production costs.  The question is whether any of these program suppliers will slip further financially, as the high volume ramp-up program continues over the coming months and years.

    With the ongoing severe economic crisis impacting Europe, along with lots of uncertainty concerning the growth of the global economy, aerospace suppliers want to insure that aerospace OEM’s will have their back in times of crisis. That very challenge may again play out regarding Boeing’s supply chain.

    Meanwhile, this week Boeing itself lifted its full-year financial outlook and reaffirmed that 787 production levels are expected to accelerate to five per month by year’s end. Boeing posted a profit of just over $1 billion in the third quarter.

    Bob Ferrari


    1. Suppose you are a procurement professional at Spirit. How do you think this huge monetary charge will affect the relationship between Spirit and its suppliers? The pressure pushed by the ultimate customer, Boeing, is amplified up the supply chain. Do you think this charge will change the dynamics of how Spirit negotiates contracts with its suppliers? Do you feel that Boeing has an obligation to essentially help out Spirit and/or its upstream suppliers if Spirit’s stock continues to plummet?


    2. Hello Rachel,

      Thanks for sharing a comment.

      You have raised important and timely questions. These very pressures do tend to cascade through various tiers of supply chains, although many want to believe that these types of practices have changed.

      Regarding Boeing, they certainly have a vested interest in the continued success of a major supplier such as Spirit. There are perhaps many options available.

      Bob Ferrari

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