Boeing lost $355 million in the first three months of the year, burning through $3.9 billion in cash after the jet manufacturer slowed 737 MAX production to a crawl following the midair blowout of a fuselage panel on an Alaska Airlines jet in January.
The first quarter financial results, reported Wednesday, included a charge of $443 million in compensation paid to airlines forced to ground their MAXs for about three weeks after the incident and another $222 million write-off in the defense division for added costs on the KC-46 tanker and T-7 fighter trainer programs.
In a message to employees focused not on the financial results but on the struggle to get control of production quality, CEO Dave Calhoun conceded Wednesday morning that “near term, yes, we are in a tough moment” but strove for optimism.
“There is a lot of work in front of us, but we remain fully confident in our future,” Calhoun wrote. “We are using this period, as difficult as it is, to deliberately slow the system, stabilize the supply chain, fortify our factory operations and position Boeing to deliver with the predictability and quality our customers demand for the long term.”
“As these efforts begin to take hold, we’re seeing early signs of more predictable, stable and efficient cycle times in our 737 factory, and expect this will continue to slowly improve,” he said.
Financial analysts were skeptical.
They noted the many challenges and uncertainties at Boeing, which needs to not only take control of quality but also find a new CEO, close a complex deal for about $3 billion to buy back major supplier Spirit AeroSystems, placate airlines about late jet deliveries, negotiate a new contract with the Machinists union, and navigate scrutiny by the Federal Aviation Administration, Congress and the Department of Justice.
Rob Stallard of Vertical Research told investors in a note Wednesday that Boeing has a record of talking up “hopelessly optimistic timetables for improvement.”
“We think this will again be the case with what has been set out today, with management seemingly nonchalant about the regulatory, political, legal, contractual, customer, competitive, supply chain and internal employee pressures that it faces,” he wrote.
And Rob Spingarn of Melius Research told investors the company’s share price will “probably be stuck in the doldrums for quite a while.”
“Boeing is likely headed for, and in need of, a multiyear restructuring,” he wrote in his note to investors. “Turnarounds take a long time.”
Controlling the MAX fuselage assembly in Wichita
Since March 1, Boeing has stopped taking fuselages from Spirit’s plant in Wichita, Kan., unless they are largely complete, avoiding the need to do disruptive catch-up work at the Renton final assembly plant.
To that end, Boeing has embedded teams of quality inspectors and rework mechanics in Wichita.
On a conference call with Wall Street analysts, Calhoun said that since March Boeing has allowed only “fully inspected fuselages to be shipped to Renton, which has dramatically reduced our nonconformances entering the Renton factory.”
He said that as Boeing struggles to develop a flow of cleanly built MAX fuselages from Wichita, the production rate on the MAX assembly line in Renton — which appears from delivery totals to be lower than 20 jets per month — remains “sporadic” but should pick up in the second quarter.
Asked how Boeing can get to its target rate of 50 MAXs per month by 2026, Calhoun said the 737 team will work toward the initial rate goal of 38 jets per month this year and that to go higher, “the acquisition of Spirit will factor in significantly into that prospect.”
Last month, to get control of the quality of its MAX fuselages, Boeing announced its intent to reacquire Spirit, which Boeing divested two decades ago in an ill-fated effort to outsource costs.
That acquisition is complicated by the fact that Spirit now makes parts for rival Airbus and also for Bombardier business jets. Spirit is working to divest those pieces of its operation to make the Boeing sale possible.
In an interview on CNBC Wednesday, Calhoun said it’s “more than likely” Boeing can announce a deal with Spirit on the acquisition during the second quarter.
Chief Financial Officer Brian West said on the conference call that at the end of March Boeing had about 110 MAX 8s built before 2023 that are still grounded, the vast majority for customers in China and India. Boeing expects to deliver most of those by year end.
But West added there are 95 additional MAXs in inventory. About 35 of those are MAX 7s and MAX 10s that cannot be delivered because those models are not yet certified by the FAA.
The timeline for certification is unclear. Boeing must first develop a fix for an engine anti-ice system defect and have the FAA approve it.
The remaining 60 MAXs in inventory are awaiting repair of various quality defects identified since last year.
Calhoun said Boeing has engaged “a team of independent quality experts to systematically review our quality control process and bring forward long term recommendations.”
“They are roughly 60 days into their work, beginning with Renton and Spirit, and we expect them to stay for several years,” he added.
Boeing is adding “hundreds of hours of training for each of our manufacturing employees” Calhoun said.
He added that by late May, at the end of the 90-day deadline imposed by the FAA to produce an action plan to ensure quality, he expects FAA approval of the changes Boeing has made, with continued scrutiny by the regulator afterward.
Calhoun favors Pope as future CEO
Production of the 787 Dreamliner is also currently low, at about three jets per month.
Calhoun said 787 deliveries are being held up due to shortages of both airline seats and a part called a heat exchanger in the jet’s environmental control system.
The heat exchanger, which regulates temperature and moisture in various airplane systems, is supplied by Collins Aerospace and was previously manufactured in Russia until sanctions imposed after Russia’s invasion of Ukraine blocked that supply.
Collins moved the manufacture of the part outside Russia, but hasn’t yet matched the output capacity needed for Boeing’s production rate.
“We’re slowing near-term production and plan to return to five per month later this year,” said West. “We will be a couple lower than that five per month for most of the year as the supply chain catches up.”
Boeing has 60 of the 787s still parked in inventory, he added. Of those, 40 are awaiting rework to fix the fuselage gaps that first halted deliveries in 2020. The other 20 are held up by the parts shortages or customer schedules.
Despite the current production struggles, Calhoun said Wednesday Boeing is sticking to its prior targets of building 50 MAXs and 10 Dreamliners per month by late in 2026.
Meanwhile, Boeing’s defense division continues to take charges on its fixed price development contracts with the Pentagon.
West said Boeing last quarter wrote off $128 million on the Air Force’s 767-based KC-46 air-to-air refueling tanker and another $94 million on the T-7 jet that will be used to train Air Force fighter pilots.
The tanker charge means that money-sucking program has now racked up $7.3 billion in cost overruns since 2014.
Calhoun has announced he’ll step down as CEO by year-end. Asked for information on the succession, Calhoun made clear his favored internal candidate remains Stephanie Pope, Boeing’s chief operating officer who last month also took over as head of the Commercial Airplanes division.
On CNBC, Calhoun declared himself “a pretty strong believer in Stephanie’s potential to run the company.”
However, he added that the new chair of Boeing’s board, Steve Mollenkopf, will conduct a search that includes current industry CEOs.
In a note to investors Wednesday, Peter McNally, global head of analysts at the financial research firm Third Bridge, wrote that while the long-term outlook for aerospace manufacturing is healthy, the pace of Boeing’s recovery remains unclear.
Airlines “need more aircraft to meet rising travel demand,” McNally wrote. “But the issues for Boeing have been boiled down to leadership and execution, neither of which are likely to be solved in the near term.”
Boeing’s loss in the first quarter was 56 cents per share. Cash on hand dropped to $7.5 billion, half of what it was a year earlier.
The Commercial Airplanes division loss was $1.1 billion on revenue of $4.7 billion, a negative margin of 25%.
And Boeing’s net debt rose above $40 billion again after dropping to just over $36 billion a year ago.
The company’s stock fell sharply Wednesday, closing down $4.85, or 2.9%, at $164.33.
Correction: A previous version of this story misidentified a parts shortage on the 787. It’s heat exchanger in the environmental control system, not in the engine.
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