By Jon Ostrower
Boeing Co. and one of its largest suppliers on the 787
Dreamliner program are continuing talks on a deal that would raise
its procurement costs on the jet, but potentially yield bigger
savings on other planes under development.
The company has spent more than two years trying to hammer out
new deals with Spirit AeroSystems Holdings Inc. over the price of
the major parts it builds for Boeing jets, ranging from engine
mountings to complete fuselages on the 737 single-aisle range.
Boeing has been pressing its suppliers to cut costs in return
for more work or for more favorable terms, a crucial part of the
aerospace company's effort to boost the profitability of its
fast-selling commercial jets after years of heavy investment.
An interim deal with Spirit AeroSystems was disclosed earlier
this year in a regulatory filing. It allows the Wichita Kan.-based
company to ease earlier planned price cuts and charge more for the
parts it makes for the two 787 models currently in production. It
also includes a key provision that could speed a final deal for
Spirit's work on Boeing's other commercial jets.
According to the filing, Spirit would record the increase in
price of 787 parts as deferred revenue, and would collect "only if
and when" a final agreement with Boeing is reached. Spirit
AeroSystems would lose the higher pricing if a broad new pact isn't
reached by the end of the year and have to return the additional
higher payment difference to Boeing, according to a person familiar
with the situation.
The new 787 pact follows an April 2014 deal between the
companies that excluded the Dreamliner, covering only components
for the current-generation 737 and long-range 777, 767 and 747
jumbo jets. The agreement, which runs until the end of 2015, also
included a year-long suspension of repayments by Spirit to Boeing
for an advance provided by the plane maker during the delayed
development of the 787. The repayments resumed in April.
Boeing in the first quarter is estimated by analysts to have
spent $26 million more on building each 787 than its average sales
price, though the deficit is being reduced as production and
factory efficiency have increased.
he Chicago-based company says its combined losses for the 787
are nearing $27 billion. The losses, also known as its deferred
production costs, will begin to fall in 2016, when Boeing starts
breaking even on each jet late this year. The program is still
profitable under Boeing's accounting that allows it to spread the
high early costs over 1,300 deliveries, enabling it to book future
earnings today.
Central to that goal is Boeing's renegotiation of contracts with
the 787's suppliers, many of whom contributed significant
engineering and financial resources to develop the advanced jet and
control the vast majority of the jet's costs.
Spirit AeroSystems has yet to reach a deal on its parts for a
third 787 model currently in development and the 737 Max, which is
beginning early production at Spirit's Wichita, Kan., factory and
enters service in 2017.
A Spirit spokesman declined to detail the pricing the company
had secured, but reiterated that its new agreement would be voided
if a final agreement wasn't reached by year's end. A Boeing
spokesman declined to elaborate.
Write to Jon Ostrower at jon.ostrower@wsj.com
Access Investor Kit for ONEX Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CA68272K1030
Access Investor Kit for The Boeing Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0970231058
Access Investor Kit for Spirit AeroSystems Holdings, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8485741099
Subscribe to WSJ: http://online.wsj.com?mod=djnwires