Boeing ends outsourcing era with key acquisition
VIRGINIA, UNITED STATES — Aerospace company Boeing recently announced its decision to acquire Spirit AeroSystems, a Wichita-based aircraft fuselage maker, in an all-stock deal valued at $4.7 billion, or $37.25 per share.
This move marks a significant shift in Boeing’s strategy, signaling the end of an era dominated by extensive outsourcing practices that began in the late 20th century.
Boeing shifts from outsourcing to vertical integration
Outsourcing became a popular business strategy in the 1980s and 1990s, driven by the desire to cut costs and focus on core competencies.
Companies like Boeing outsourced significant portions of their manufacturing processes to external suppliers.
In 2005, Boeing sold its Wichita and Tulsa operations to private equity firm Onex, creating Spirit AeroSystems. This move was intended to reduce costs and improve efficiency by leveraging economies of scale and focusing on intellectual property.
However, the drawbacks of this approach have become increasingly apparent. The pandemic severely impacted Spirit AeroSystems, resulting in $2.6 billion in losses between 2020 and 2023.
Quality-control issues, such as poorly drilled holes, have plagued Spirit, causing significant headaches for Boeing and contributing to its decision to reintegrate the supplier.
Benefits of vertical reintegration
Boeing’s decision to reacquire Spirit AeroSystems is rooted in the logic of vertical reintegration. By bringing critical manufacturing processes back in-house, Boeing aims to streamline its operations, improve quality control, and enhance safety standards.
Dave Calhoun, Boeing’s President and CEO, emphasized that this move would align production systems and workforce incentives toward safety and quality priorities.
This strategic shift is not unique to Boeing. Other industries are also moving away from the outsourcing model. Intel is investing in chip manufacturing in the United States, General Motors is building battery plants, and IKEA is acquiring containerships.
The future of aerospace manufacturing
The reacquisition of Spirit AeroSystems by Boeing highlights the evolving landscape of aerospace manufacturing. The deal also includes provisions for Spirit to sell a portion of its business to Airbus, resolve potential conflicts of interest, and ensure a smoother transition.
This shift towards vertical integration is expected to benefit air travel safety by centralizing supervision and simplifying workflows between plants. It also represents a broader indictment of the outsourcing model that has dominated corporate strategies for decades.
As companies grapple with the complexities of global supply chains and the need for greater control over their operations, the trend towards reintegration is likely to continue.
