Business

How the crisis at Boeing is threatening a historic Belfast factory

Uncertainty clouding Short Brothers plant is an unintended consequence of US plane maker’s move to undo Spirit spin-off

Spirit AeroSystems Holdings is considering whether to sell its Shorts factory in Belfast. Photograph: Clodagh Kilcoyne/ Reuters

Jude Webber
Sylvia Pfeifer
Mon Mar 11 2024 - 10:30

In a chilly hangar in Northern Ireland, Ulster Aviation Society co-founder Ray Burrows surveys painstakingly restored aircraft including a sleek black Sherpa jet, a boxy Short 330 and a Canberra spy plane – all developed at the Short Brothers factory in Belfast.

As integral to the region’s manufacturing history as the nearby Harland & Wolff shipyard that built the Titanic, the Shorts plant is owned by Spirit AeroSystems, a key supplier to Airbus.

But its future is up in the air because of the travails of Boeing, which is grappling with a crisis over its 737 Max jet following January’s mid-air panel blowout and two fatal crashes in recent years. The US plane maker said last week it was in talks to buy back Spirit almost two decades after spinning it off, as it seeks to improve its quality processes.

That creates a quandary for Airbus. Spirit supplies the main fuselage of the Max in the US and Boeing accounts for nearly two-thirds of its business, but the Belfast factory makes wings and mid-fuselage sections for the European group’s A220 passenger jets.

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If Boeing and Spirit strike a deal, Airbus could be forced to buy the loss-making Shorts plant. But it already has a large UK operation that builds the wings for its larger commercial aerospace programmes and analysts believe it will not be keen to add another.

The uncertainty clouding the Belfast plant is an unintended consequence of Boeing’s move to undo the ill-fated spin-off of its Wichita operations in 2005 to Canadian private equity group Onex, which listed the company as Spirit a year later.

Boeing had hoped the spin-off would lead to lower procurement costs and help it shed unionised workers but Spirit has suffered from lopsided contracts with its former owner and main customer, as well as quality failures in its manufacturing.

Rob Stallard, analyst at Vertical Research Partners, said the potential reversal was “part of a much bigger issue”. Boeing, he said, “has spent the past 20 years trying to hammer the supply chain. It’s all been about hammering suppliers on price and on contractual terms”.

The past couple of years after the Covid pandemic, he added, had shown that the aerospace supply chain was not as “robust and resilient” as the main manufacturers thought, and while bringing Spirit back in-house would mean higher costs, it was perhaps a sign that Boeing was admitting some of the mistakes of the past.

As well as the Belfast factory, questions remain over the future of Spirit’s operation in Prestwick, Scotland, which makes components for other Airbus planes including the A350, employs about 1,100 people and is also loss-making.

Airbus, which has battled to reduce costs at the A220 programme it bought from Canada’s Bombardier almost six years ago for C$1, has held exploratory talks with Spirit about the Belfast factory, according to people familiar with the situation.

Spirit, which has been in talks with Airbus to renegotiate prices for its work on the A220 and A350 programmes, told the Financial Times that “many options remain viable”. Airbus declined to comment.

The prospect of another change of ownership at one of Northern Ireland’s biggest factories just four years after Spirit bought it from Bombardier had sparked “very real nervousness” about its more than 3,500 jobs, according to Alan Perry, a senior organiser at the GMB union. “People are fearful in relation to what the future may bring,” he said.

Founded in 1908 in England, Shorts laid claim to becoming the world’s first aircraft manufacturer the following year when it landed an order from American aviation pioneers the Wright brothers. It moved to Belfast In 1936.

There, it spawned a Northern Irish aerospace and defence sector that has grown into a £2 billion industry with a supply chain of more than 100 often small businesses employing 9,000 people across the region. Today one in three of the world’s aircraft seats is made in Northern Ireland.

“This is a small place – that value is massive,” said Leslie Orr, director of local aerospace and defence trade association ADS NI. “Aerospace is vital to Northern Ireland – these are high-tech, high-value exports.” Seventy per cent of the UK’s so-called gold standard aerospace and defence supply chain businesses are located in the region.

Spirit’s Belfast operation is a “national treasure”, according to Mark O’Connell, head of trade consultancy OCO Global. Spirit is a crucial industrial partner in the Northern Ireland Advanced Composites and Engineering Centre, a research lab located next door.

The £520 million investment in what was then Bombardier’s C-Series aircraft wing programme in Belfast was the largest single inward investment in Northern Ireland, but the Canadian group’s attempt to break the Boeing-Airbus stranglehold on single-aisle commercial jets nearly pushed it into bankruptcy in 2015.

Airbus’s 2018 rescue of the C-Series, which it subsequently rebranded as the A220, kept jobs and production of the efficient carbon-fibre composites wing in Belfast.

“Shorts were working on composites when other companies were just thinking about it – and they stuck at it,” said the Ulster Aviation Society’s Burrows, who followed his father into the business and trained there as an engineer. “That has paid off.”

For Orr, “with the innovation that there is in Northern Ireland, and global demand, this will always be an important industry”. A global order backlog of almost 15,000 aircraft will take many years to fulfil.

But financial pressures hang over the Belfast plant, which has not made a profit since 2016 and has been hit by supply chain squeezes and inflation despite a recovery in the global airline business since Covid.

Airbus’s desire to bring down costs on its A220 programme – on which Sash Tusa, analyst at Agency Partners, said it was losing “several hundred million euros a year” – clashes with Spirit’s desire to see a better return on the 110-130 seat jet. “It’s two pretty immovable objects,” he added.

Guillaume Faury, Airbus chief executive, confirmed last month that the plane maker’s discussions with Spirit had covered “a lot of parameters of the contractual relationship, price being one of them”.

Even if Boeing takes Spirit back in-house, there is no certainty that Airbus will buy the Belfast plant.

“Spirit is an existential supplier to Boeing. It isn’t to Airbus – the A220 only represents about 7 per cent of the company’s annual commercial aircraft revenues,” said Tusa. “The value of the [Spirit] Northern Ireland business is pretty much what Airbus decides to pay. They totally control its volume and any future profitability.”

Burrows, who started his working life at the Belfast factory almost 60 years ago aged 16 and now preserves vintage Shorts planes among an array of other aircraft, said he could still smell the oil and grease on the shop floor from his time there in the 1960s and 1970s.

In a region known for three heavy industries – shipbuilding, engineering and linen – Spirit’s Belfast business is part of the fabric of Northern Ireland.

“It’s been one of the main employers since World War Two,” he said. “It doesn’t matter who owns it as long as they keep the aircraft business.” – Copyright The Financial Times Limited 2024

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