Boeing (BOE, Washington National) will advance USD425 million to US aerostructure manufacturer Spirit AeroSystems to maintain production levels that meet the OEM's contractual demands, according to a Memorandum of Understanding (MoU) the parties inked on April 18 and announced on April 23.

The advance payment relates to long-term agreements though which Spirit supplies Boeing's B737, B747, B767, B777, and B787 commercial aircraft programmes.

In a regulatory filing to the US Securities and Exchange Commission (SEC), Spirit said the MoU aims to address issues it faces such as high inventory levels, lower operational cash flow, lower expected deliveries to Boeing, and higher factory costs to maintain production readiness. This is due to improvements in product quality verification processes - including moving such processes from Renton, Washington, to Wichita, Kansas.

The Federal Aviation Administration (FAA) has also imposed limits on the production rate of the B737 MAX. Boeing is currently limited to producing 38 a month.

Under the agreement, Boeing will make three advance payments on the companies' long-term supply agreements. A first tranche of USD275 million was to be paid by April 18, followed by USD50 million by April 29, and USD100 million by May 6. In exchange, Spirit must produce a specified operational plan and a related financial forecast. It also must provide Boeing with specified financial information on a weekly basis.

The recent agreement marks a step in addressing shortages of key parts from suppliers, resulting in a slower increase in the production and delivery of new B787 widebodies, and the slowdown in B737 MAX production.

The OEM's first-quarter results reflect this slowdown aimed at improvements in production quality after Boeing came under the FAA's spotlight when a door plug blew out of a B737-9 in early January on an Alaska Airlines flight, grounding all-9s, while B787 deliveries remain backlogged after a two-year halt over manufacturing defects.

The agreement also comes amid reports that Boeing is in talks to repurchase Spirit AeroSystems, a former subsidiary of the OEM.