Boeing Co (NYSE:BA) and one of its suppliers on leading 787 Dreamliner plan are extending talks on an agreement that would result in higher procurement costs on the jet, but support bigger savings on its other jets under development.
Measures to reduce cost
Boeing has spent over two years trying to finalize the new agreement with Spirit AeroSystems Holdings Inc. The discussions are related to the price of the major components it builds for Boeing planes, including engine mountings, complete fuselages and others. The company has been pressing hard on the suppliers to reduce cost in return for more favorable terms or more work. It is an effort of the aerospace company to enhance the profitability of its commercial jets. It invested time as well as resources in its fast selling commercial planes.
Boeing disclosed an interim agreement with Spirit AeroSystems earlier this year. It permits the Wichita, Kan., to ease previously decided price cuts and in fact charge more for the components manufactured for the 787 models under production. The interim deal also covers a rider that could speed a final agreement for Spirit AeroSystems work on the company’s other commercial jets.
As per the filing, Spirit is allowed to record the rise in price of 787 as deferred revenue. Moreover, it is allowed to collect only if and when a final deal with aerospace company is reached. The higher prices can be rejected if the new deal is not finalized by the end of 2015. Under such circumstances it would be forced to return the surplus payment difference to Boeing Co (NYSE:BA). The 787 pact runs until the end of this year and also includes one year long suspension of repayment by manufacturing company to Boeing for an advance given during the deferred development of the 787. As per the estimate, the total losses for the 787 models are approaching $27 billion.