Boeing is the world’s largest aerospace company and a leading manufacturer of commercial jetliners, defense, space and security systems, as well as being a service provider of aftermarket support. For years, the company was recognized as America’s biggest manufacturing exporter, providing support to airlines as well as US and allied government customers in more than150 countries around the world. Headquartered in Chicago, Boeing formerly employed more than 160,000 people across several locations in the US and in more than 65 countries. But chinks began appearing in their corporate amour starting in October 2018 when a Lion Air 737 Max crashed in Indonesia. Then an Ethiopian Airlines Max went down after takeoff a few months later. The crashes claimed 346 lives and resulted in the subsequent grounding of the type by the world's governments. We studied this here in a post titled “The 737 Max and the Big Four” dated September 1, 2019. With a full year gone by, let’s see how Boeing’s fared within the past 12 months amidst continuing turbulence.
The company was in crisis mode for most of last year. The Board felt something had to change. Their solution? Fire the boss. President and CEO Dennis Muilenburg was ousted in late December. In a statement, Boeing said, “the Board of Directors decided that a change in leadership was necessary to restore confidence in the Company moving forward as it works to repair relationships with regulators, customers and all other stakeholders.” For families of the victims, the firing was justified. “This is something we have been asking and struggling for quite some time,” said Ababu Amha who lost his wife in the Ethiopian Airlines crash. “The CEO reluctantly but deliberately kept the aircraft in service after the Lion Air crash. The Ethiopian Airlines crash was a preventable accident.” The company’s Chairman David Calhoun officially took over as President and CEO on January 13.
Within the next few months, the coronavirus ran rampant. The drop in travel demand caused airlines to park their aircraft and cancel orders.. Boeing was initially forced to lay off almost 7,000 American employees. This was followed-up with a voluntary layoff opportunity (VLO) for workers, essentially a buyout for employees who wanted, or could afford to, leave the company. "Boeing will utilize normal turnover and voluntary employment actions to limit the impact on our people," they later explained in a follow-up email to Barron's. "The Company is identifying highly valued skills necessary for critical programs, and these employees will not be eligible for the program." They expected a 10 per cent reduction in the workforce to be completed within the year to include both US and international employees. In August, officials with Boeing said they’d offer a second VLO to workers due to COVID-19 and its continuing affect on the market. The company also reported that, while they’ve seen signs of recovery from the pandemic, their industry and their customers continue to face “significant challenges.” Boeing claims to have taken these proactive steps to adjust and position themselves for recovery.
In late June, the manufacturer completed test flights of its troubled 737 Max airplane to demonstrate that it can fly safely again with new flight control software. Even as Boeing began testing the planes for recertification however, the US Department of Transportation Inspector General’s report claimed the company had kept information from federal regulators about the flawed computer system that brought down the 2 jets during the plane’s initial approval process. The report said the MCAS, (Maneuvering Characteristics Augmentation System), was not an area of emphasis in certification efforts by the Federal Aviation Administration (FAA). Therefore, it didn't receive a more detailed review or discussion between FAA engineers and Boeing. Both crashes were caused in part by this software which automatically pushed the nose of the planes down.
In a statement, Boeing welcomed the findings of the report and said it was committed to safety and transparency. “We have dedicated all resources necessary to ensure that the improvements to the 737 Max are comprehensive and thoroughly tested." The jet’s grounding has cost Boeing billions of dollars, including cancelled orders and compensation paid to survivors and airlines. The questions raised about the rushed effort to build and approve the Max have also tarnished the company’s once-stellar image. A proposed bill to tighten controls on how FAA safety regulators oversee and approve Boeing’s design of new jets has been hammered out by a Senate committee after backroom negotiations and a pressure campaign by families of the 346 people who died in the 2 crashes. If passed, this bill would reverse the years-long trend of delegating more and more control of the process to Boeing and shift the balance of responsibility back toward the FAA. The company also appears to have quietly dropped the “Max” designation, simply referring to the plane now as the 737-8.
It was the fastest-selling plane in the company’s history, with nearly 5,000 orders on the books. The company only delivered 400 planes when the aircraft was grounded. Since then, it was producing them at the rate of about 42 per month and parking the finished planes in storage areas. They halted production in January which had repercussions, not only for Boeing, but for its massive chain of global suppliers as well. But that’s not all. To add to their woes, Boeing's order cancellations have outpaced sales for the past 6 months as overall demand for any aircraft continues to fall. Through July of this year, Boeing has had net negative orders of 836 planes, including aircraft the company took out of its backlog of orders awaiting fulfillment. They delivered only 4 aircraft in July, including a 767 freighter and a 777 freighter as well as two 787 Dreamliners.
Boeing is a conglomerate and while the commercial airplane group is but one part, it’s an historic and vitally important one. Revenues for this key segment plunged 65 per cent in the second quarter to $1.63 billion due to lower delivery volume The segment also incurred an operating loss of $2.76 billion compared with a loss of $4.95 billion in the 2019 quarter. The company delivered 20 commercial planes during the quarter under review, down 78 per cent from the same time period last year. Even with the order cancellations however, backlog for this segment remains healthy with over 4,500 airplanes still on the order books valued at approximately $326 billion. The problem is that Boeing can no longer be certain orders will ever be filled due to the precarious financial condition of their global airline customers. The company finished the second quarter with cash and cash equivalents of $20 billion, and short-term and other investments of $12.44 billion. Long-term debt amounted to $58.46 billion at the end of the reporting period, up from $19.96 billion at the end of last year. Due to the uncertainty regarding the timing and conditions related to the 737-8 fleet’s return to service, Boeing has once again refrained from issuing guidance.
“When it rains, it pours,” as the old saying goes. In Boeing’s case, just when you thought it couldn’t get any worse, it did. They recently found a problem in the manufacture of the 787 Dreamliner, the wide body jet lauded as one of their most successful planes ever launched. Eight of those aircraft have been grounded for inspection and repair centering on how parts of the fuselage were joined together. “Boeing has identified two distinct manufacturing issues in the join of certain 787 aft body fuselage sections which, in combination, result in a condition that does not meet our design standards,” said the company’s statement. Nearly a thousand 787s have been delivered to 69 different airlines worldwide since its 2012 introduction. The Air Current, the aviation news site which broke the news, reported that Air Canada, Singapore Airlines and United Airlines own the 8 planes. The FAA says it is aware of the problem and ”continues to engage with Boeing."
With luck, the company will get the 787-8 back in the air. With further luck, we’ll discover an effective vaccine and travel demand will return, bringing with it an increase in orders by the world's airlines. We've all got our fingers crossed.
Until next time...stay safe.
A sad story for Boeing but even worse for those passengers who died as a result of technology over-riding human skills ...
Let’s hope the industry and economy do rebound once this virus is under control.