Boeing Cancels License To Spirit For Spare Parts

Spirit AeroSystems has confirmed that it will no longer be providing a wide range of spare parts for Boeing aircraft after the plane maker cancelled its license.

Spirit said the financial impact would be minimal and prompt only a small reduction in its worldwide staff of 15,000.

But its shares initially dropped on the news as investors and analysts saw bigger implications: a sign Boeing is building its own aftermarket business and a potential uptick in tensions between the two companies, which have failed to reach an agreement on contract terms for other parts Spirit supplies.

Boeing is driving down costs to increase profit margins and compete on sales against Airbus. Boeing has been pressing suppliers to cut prices by 10 to 15 percent. It also is demanding royalties on spare parts it designed, and threatening to withhold permission to manufacture them if suppliers refuse to pay.

"I know for a fact it's occurring," said an industry expert who spoke on condition of anonymity because the discussions were not public. Suppliers are hesitant because if they give a royalty on one part, "Boeing's going to want it on others."

Boeing said royalties reflect the value of its intellectual property, and help it to recoup investment in developing parts.

"Financially, this is small component of our business," Spirit said in a statement. "While our role is changing, airlines will continue to need the parts that Spirit manufactures."

Boeing and Spirit remain at odds over their expired supply agreement, which is separate from the deal that Boeing terminated this week, according to people familiar with the talks. Boeing is seeking price cuts in exchange for greater volume.

But Spirit, having cut its own costs, is sharing less financial data with Boeing. "We've partnered for success as much as we're going to," one of the sources said, referring to Boeing's cost cutting initiative, which it calls Partnering for Success.

Boeing also is cutting staff. On Wednesday it said it will eliminate more than 4,500 jobs by mid-year. It plans to cut up to 8,000 by year-end, according to people familiar with the matter.