- Boeing is setting up to turn things around after a seven-week strike.
- Striking workers return to the factory floor this week with the goal of increasing production.
- Boeing also aims to improve safety and quality under CEO Kelly Ortberg’s four-point turnaround plan.
One week after the end of a 53-day-long strike at Boeing, the planemaker is initiating its plan to turn things around.
That includes restarting production in the Seattle area and giving money to Spirit AeroSystems, a troubled supplier that it’s set to acquire next year.
After reporting a $6.1 billion loss in the last quarter, Boeing’s CEO, Kelly Ortberg, said, “It will take time to return Boeing to its former legacy, but with the right focus and culture, we can be an iconic company and aerospace leader once again.”
Reaching a deal with the union went some way toward improving stability, part of Ortberg’s four-point plan, but it also requires a steady, increased output of aircraft.
As Seattle-area machinists were on strike in October, Boeing delivered 14 jets — its lowest mark since the pandemic four years ago.
The path forward arguably began on Tuesday — the deadline for the 33,000 striking union members to return to work. However, ramping up production levels will still be difficult.
In an earnings call last month, Ortberg said it would likely take a couple of weeks to bring everyone back, given recertification and retraining efforts.
On Wednesday, some 17,000 Boeing staff will find out if they’re part of the 10% being laid off in January, The Seattle Times reported.
Ortberg said during the call that his plan with the layoffs is to “reset priorities and create a leaner, more focused organization.”
Marian Lockhart/Boeing/Handout via REUTERS
A report from investment research firm Morningstar said it expects Boeing to “stretch into 2025 before manufacturing can resume in earnest.”
“While the strike ending and workers returning to the shopfloor is a meaningful step in the right direction, ramping back up will take time,” Bank of America analysts wrote in a report.
The obstacles to clearing Boeing’s 5,400 plane backlog
Beyond Boeing’s own issues, the aerospace industry as a whole has been hampered by constraints on the supply of both skilled labor and raw materials. That’s left Boeing with a backlog of around 5,400 commercial aircraft worth roughly $428 billion.
Although this may be lower than rival Airbus‘s 8,749, Boeing faces more obstacles to its production challenges.
Many of these challenges were prompted by January’s Alaska Airlines blowout, in which a door plug on a 737 Max blew out in midair. The incident shed light on Boeing’s production processes and led to heavy scrutiny from regulators and politicians alike.
The Federal Aviation Administration consequently limited Boeing’s 737 output to 38 a month until it implemented a safety and quality plan. Still, the planemaker has slowed beyond that as it works to overhaul its production processes.
In October, it delivered nine such jets, down from around 30 a month in the previous quarter.
CFO Brian West said in the earnings call that the planemaker had been preparing for 38 a month by the end of the year, but the strike impact means that target will take longer to hit.
Credit rating agencies have warned that Boeing’s bonds could be downgraded to junk status. Ben Tsocanos, S&P Global Ratings’ aerospace director, said Boeing’s equity raise provides a “cushion,” but its rating still depends on its ability to increase both production and quality.
“It will take time to work off the massive inventory that Boeing has today, but quality needs to improve as well,” said Peter McNally, global head of analysts at investment research firm ThirdBridge.
Boeing’s path forward also includes a commitment to give $350 million in advance payments to Spirit AeroSystems, a key supplier that it plans to acquire next year.
Spirit had warned in a regulatory filing last Tuesday that there was “substantial doubt” about its ability to continue as a going concern.
It said its cash flow had been impacted by changes to Boeing’s production processes, such as no longer accepting deliveries that required out-of-sequence assembly.
This change likely arose because the fuselage of the Alaska Airlines 737 Max involved in January’s blowout was built by Spirit and arrived at Boeing’s factory with damaged rivets. Boeing’s work to fix this ended in the door plug not being secured, causing it to come off the plane in midair, per the National Transportation Safety Board’s preliminary report.
In other words, concerns about Boeing’s production quality came to a head due to the incident — resulting in reverberating effects on its production lines. The advance payments to Spirit can help it get back on track ahead of the acquisition.
Airbus, which is buying a smaller part of Spirit, is also giving it a $107 million line of credit.
Several customers have voiced their frustration with Boeing’s delivery delays, but improving quality is paramount.
Ortberg’s four-point plan can help. It also involves changing Boeing’s culture, with company leaders spending more time on the factory floors. Ortberg has chosen to be based in Seattle, the planemaker’s hub and historic home, rather than in Virginia, where its corporate headquarters are.
The road ahead may be long, but many analysts have confidence in Ortberg’s ability to make Boeing “iconic” again.
