By Abhijith Ganapavaram and Allison Lampert
(Reuters) -Boeing is in talks to buy its struggling former subsidiary Spirit AeroSystems (NYSE:SPR), as both companies try to solve persistent quality problems and contain costs related to 737 MAX production, an industry source familiar with the matter said on Friday.
A merger would bring Spirit back under the umbrella of Boeing (NYSE:BA), which spun it off in 2005 and in recent years has struggled with cost pressures and problems that have slowed aircraft deliveries and thinned its balance sheet.
Spirit has hired bankers to explore strategic options and has had preliminary discussions with Boeing, the Journal reported earlier on Friday, citing people familiar with the matter. Boeing and Spirit declined to comment.
An industry source confirmed the move to Reuters.
Boeing had previously considered the prospect of buying Spirit AeroSystems back since divesting it, but the optics of buying at a higher price were among the factors that discouraged such a move, according to a second industry source.
Shares of Spirit jumped over 13% on Friday, while those of Boeing fell more than 1%.
Both Boeing and Spirit have been under fire since a Jan. 5 incident when a door plug blew off a 737 MAX plane in mid-flight, exposing frightened passengers to the outside air.
Reuters reported last month that years of decentralization of Boeing's planemaking capacity - along with an exodus of experienced workers and aggressive cost-cutting - has affected quality.
Bringing Spirit back into the fold could address some of those quality issues as it would give Boeing more control over manufacturing.
Such a move would also help Boeing lower Spirit production costs through economies of scale, the second industry source said.
"Clearly Spirit is in a world of pain at the moment, and the ongoing regulatory risk on its largest program – the 737 – makes things worse," said Vertical Research Partners analyst Robert Stallard.
"For Boeing, this does give them the opportunity to bring Spirit in-house and fix its problems, but Boeing of course has its own issues and has hardly covered itself with glory when it comes to execution of late."
Spirit, one of the industry's major manufacturers of large aircraft structures, has struggled with cash flow problems over the past few quarters and quality issues surrounding the fuselages it makes for Boeing's 737 narrowbody jets.
Spirit's shares have lost more than 70% of their value over the last five years, according to LSEG data.
Spirit is also exploring selling operations in Ireland that make parts for Airbus. Spirit's market capitalisation stood at $3.3 billion as of Thursday's close.
The U.S. Federal Aviation Administration has barred Boeing from expanding production of its cash-cow 737 MAX family of jets after the Jan. 5 Alaska Airlines incident.
On Feb. 12, FAA head Mike Whitaker visited Boeing's Renton, Washington, factory, where the 737 MAX line is produced, and expressed concerns about some things he saw on the tour to CEO Dave Calhoun earlier this week, two people briefed on the matter told Reuters.
Investigators are still trying to definitively sort out responsibility for the incident. Spirit made the panel, but Boeing removed it to fix rivet damage nearby and then put it back, according to a preliminary report by U.S. investigators who found pictures showing the panel at Boeing apparently missing key bolts.
Wichita, Kansas-based Spirit in October named former Boeing and Pentagon official Patrick Shanahan as its interim CEO, replacing Tom Gentile.
In the same month, Spirit reached an agreement with Boeing under which the supplier received immediate funding from the planemaker and revised prices for 737 and 787 production.