Troubled aviation giant Boeing reported a first-quarter loss of US$343 million on Wednesday, reflecting recent safety troubles that have slowed production and deliveries.
Boeing said it tempered production in the 737 programme following a January near-catastrophic incident on an Alaska Airlines jet that has sparked heavy scrutiny from Washington and among Boeing’s airline customers.
“Our first quarter results reflect the immediate actions we’ve taken to slow down 737 production to drive improvements in quality,” said Chief Executive Dave Calhoun, who will step down at the end of 2024.
The extra time taken “will position us for a stronger and more stable future,” Calhoun said.
Boeing’s commercial airplane business suffered an operating loss, due in part to “customer considerations” of US$443 million following a temporary grounding of the 737 MAX 9 after the Alaska Airlines incident, according to a Boeing securities filing.
Boeing’s defence space and security division reported operating profitability in spite of losses on a pair of defence programme involving a tanker and advanced jet trainer.
Revenues fell 7.5 per cent to US$16.6 billion.
Ramping up?
On January 5, Boeing found itself again under intense pressure when an Alaska Airlines jet made an emergency landing after a panel on the fuselage blew out mid-flight.
Boeing announced operational changes on March 1 intended to improve its interfacing with Spirit AeroSystems, a contractor that builds fuselages for the MAX. The Alaska Airlines investigation has focused on missing bolts on the door plug.
Boeing has slowed production of the MAX to below 38 per month while it works through the inventory of fuselages that were built prior to the new inspection protocols overseen by Boeing staff who have relocated to Spirit’s factory in Wichita, Kansas.
Calhoun said ensuring a “clean” fuselage from Spirit represents a key step that should enable Boeing to boost MAX production.
The company produced fewer than the 38 MAX planes allowed by the Federal Aviation Administration in the first quarter, when it burned through US$3.9 billion in cash.
Boeing expects to restore output to 38 per month in the second half of 2024, which should enable the company to attain profitable cash flow for all of 2024, according to Chief Financial Officer Brian West, who said the second-quarter cash loss won’t be as big as in the first quarter.
Calhoun said he was “confident” that Boeing and Spirit would ultimately be able to raise production on the MAX to 50 per month. The FAA has said it will freeze Boeing’s production at 38 until the company demonstrates improvement.
Calhoun confirmed to CNBC that the company still forecasts enough of a recovery to maintain its target US$10 in annual free cash flow in 2025 or 2026.
“This will cost us six months,” Calhoun told the network. “I still believe it’ll happen in that two-year period.”
The target also anticipates that Boeing will reach production of 10 per month of the 787 Dreamliner, which is being slowed to five per month due to supply chain shortages, executives said.
Capitol Hill scrutiny
The Alaska Airlines incident has undermined Boeing’s contention that has fully turned around its operations after two fatal 737 MAX crashes on Lion Air and Ethiopian Airlines in 2018 and 2019.
Since the Alaska Airlines incident, an audit by an FAA advisory panel pointed to significant shortcomings in Boeing’s safety culture.
Javier de Luis, an aerospace engineer who worked on the FAA review, told a Senate panel last week of a “disconnect” between the pledges of safety by Boeing management and the worry that line workers will be penalised for speaking up.
Last week, a second Senate panel heard from a whistleblower who said he was punished after raising safety questions about the 787 Dreamliner.
The FAA on February 28 announced it was giving Boeing 90 days to present a “comprehensive action plan to fix systemic quality-control issues.”
Besides the departure of Calhoun, Boeing in March also announced that Qualcomm CEO Steve Mollenkopf will serve as the company’s new chair.
Boeing has also disclosed that it is in talks to potentially reacquire Spirit, which Boeing spun off in 2005 to lower costs.
In the wake of the Alaska Airlines problem, Wall Street analysts have downgraded earnings estimates.
On Wednesday’s Moody’s downgraded Boeing’s rating to “Baa3” with a “negative” outlook, the last notch in the investment-grade scale.
The move reflects the “inadequate performance” of Boeing’s commercial airplane business, said Moody’s, which expects “the headwinds buffeting commercial airplanes will now persist at least through 2026.”
Shares of Boeing fell 2.9 per cent, AFP reported.
U.S. to decide by late May if Boeing violated prosecution deal
Meanwhile, U.S. Justice Department officials plan to decide as soon as late May whether Boeing (NYSE:BA) violated an agreement that shielded the planemaker from criminal prosecution over fatal crashes in 2018 and 2019, people familiar with the matter said.
Government officials revealed the timeline during five hours of meetings on Wednesday in which families of the victims of the two Boeing 737 MAX crashes pressed U.S. officials to criminally prosecute the planemaker.
The families have argued that Boeing violated a 2021 deal with prosecutors to overhaul its compliance program following the crashes, which killed 346 people.
Federal prosecutors had agreed to ask a judge to dismiss a criminal charge against Boeing so long as it complied with the deal’s terms over a three-year period.
But during a Jan. 5 Alaska Airlines flight, just two days before the 2021 agreement expired, a panel blew off a new Boeing 737 MAX 9 jet, Reuters cited.
The agreement gives U.S. officials six months from the deal’s Jan. 7 expiration — or until July 7 — to decide whether to prosecute Boeing on a charge that the company conspired to defraud the Federal Aviation Administration or pursue other alternatives to dismissing the case.
Paul Cassell, a lawyer for the families, said on Wednesday that the Justice Department plans to give Boeing and the families at least 30 days notice of its decision ahead of the deadline, which would mean a decision by early June.
“We certainly hope they do the right thing and continue to pursue this case,” Cassell said, adding that government lawyers declined to answer specific questions about the review. “If we hear the Justice Department is moving to drop the charges, we will fight that aggressively.”
Justice Department officials are now weighing that incident as part of a broader probe into whether Boeing violated the deal, known as a deferred prosecution agreement, or DPA, two people familiar with the matter told Reuters.
Naoise Connolly Ryan, whose husband, Mick Ryan, was killed in the 2019 Ethiopian Airlines Boeing 737 MAX crash, said the deal with Boeing was a “miscarriage of justice” in 2021.
“We don’t want a third crash,” Ryan said. “We’re hoping the Department of Justice will do the right thing now and not dismiss the charges against Boeing.”
A government official at the Wednesday meeting said the Justice Department will likely decide by the end of May if it believes there was a breach or not, two sources told Reuters.
Family members argue an independent monitor is needed to ensure Boeing’s compliance with the agreement. Boeing’s deal had no such requirement, unlike some past agreements with other companies.
Boeing did not comment on Wednesday, while the Justice Department declined comment.
In January 2021, Boeing agreed to pay $2.5 billion to resolve a criminal investigation into the company’s conduct surrounding the crashes. The U.S. planemaker agreed to compensate victims’ relatives and overhaul its compliance practices as part of the deal with prosecutors.
In an earlier April meeting with family members’ lawyers, Justice Department officials said they were looking at circumstances outlined in the 2021 deal that could put Boeing in breach of the agreement, such as the company’s committing a felony or misleading U.S. officials, one of the people familiar with the matter said.
