A transaction in the works ? By Desjardins this morning
Boeing to acquire Spirit—potential implications for Bombardier
With several publications reporting that Boeing will acquire aerostructures supplier Spirit, we take
a closer look at the potential implications for BBD. Recall that back in 2020, BBD divested its
aerostructures businesses in Belfast and Morocco to Spirit for net proceeds of US$275m (EV of US
$865m when including the assumption of liabilities by Spirit). The Belfast operations employ 3,400
workers and manufacture the fuselage for the C650, C3500, G5500 and G6500, as well as engine
nacelles, stabilizers and other components for BBD (Morocco is much smaller, with only 220 workers, and mainly assembles emergency doors and floors).
More importantly, the Belfast operation also manufactures the composite wings for the A220 (formerly the CSeries), which is an important growth platform for Airbus. According to Reuters, this is why Airbus has an agreement in place with Boeing to carve out all or part of the operations of the plants in Northern Ireland. An announcement on the complex agreement between the three companies could come as early as next week, according to the Financial Times. The article also states that Airbus could agree to pay a “nominal sum” to take over the work on the A220 program.
If Airbus does in fact come to an agreement with Boeing for the units, we would expect BBD
management to consider all of its options and potentially carve out the bizjet fuselage business (leaving A220 wing manufacturing with Airbus) to further secure its production.
According to the latest publicly disclosed accounts on the UK government’s website, the Belfast units generated US$697m in revenue but an after-tax loss of -US$228m in 2022. Digging deeper into the financials, only US$207m came from fuselage sales (or ~30% of revenue) and the units carried >US $500m in debt. Putting all this information together and given the Belfast facilities are loss-making, we would expect a de minimis cash outflow from BBD below the US$275m amount paid by Spirit in 2020 in the event BBD decides to buy the non-A220-related business from Airbus.
If BBD does end up in-housing the Belfast production, we see limited risk from an execution standpoint as management is experienced with integrating/divesting business units following the restructuring in recent years. Moreover, this would not be the first time BBD vertically internalizes production; last year, it acquired the assets/operations for its electrical wiring and interconnection systems from Mexican supplier Latcore (amount not disclosed) and in 2019, it acquired the G7500 wing program from supplier Triumph (see our note). Neither acquisition, nor the switch to Pearson, materially impacted deliveries