Posted on October 23, 2024 by Camila Stella

Boeing’s CEO says fixing the plane maker’s problems will take time

Boeing’s CEO says fixing the plane maker’s problems will take time

(Bloomberg) — Boeing Co. Chief Executive Kelly Ortberg delivered an unvarnished look at his company, which is at a crossroads and grappling with challenges ranging from high debt to serious performance deficiencies that will take time to resolve before the development of a new aircraft can be considered.

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In his first public presentation, Ortberg offered a blunt assessment of what needs to change, saying Boeing has “some really big rocks that we need to get past to move the company forward.” Among the most urgent tasks, he said, was ending a strike that has paralyzed Boeing for weeks. Workers will vote later today on whether to ratify a new contract offer.

“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 a leader in aerospace again,” Ortberg told employees early Wednesday a message.

Ortberg laid out a four-pronged plan that calls for rebuilding a culture in which management is close to what’s happening on the factory floor to prevent “problems from festering.” He also brought detailed business reports aimed at catching operational failures before they turn into full-blown crises. And as the company works to stabilize its business, he insists Boeing must not lose focus on building an entirely new aircraft.

“Boeing is an aircraft company and at the right time in the future we need to develop a new aircraft,” Ortberg said in prepared remarks to investors. “But we still have a lot to do before then.”

Cash outflow

Boeing’s third-quarter results released Wednesday underscored the task ahead. Boeing had already released some numbers earlier this month, including $5 billion in fees and $17.8 billion in revenue, which fell short of analysts’ estimates. The company posted negative free cash flow of $2 billion in the quarter, adding to outflows of $8.2 billion in the previous two periods. The total net loss was approximately $6.17 billion.

Boeing’s two largest companies reported widening losses in the quarter that ended two weeks after striking factory workers in the Pacific Northwest quit.

The commercial aircraft division posted an operating loss of about $4 billion, compared with a loss of $547 million a year earlier, as Boeing announced a new delay for the first 777X jetliner and announced plans to halt production of its 767 freighter.

Boeing’s defense and aerospace business lost $2.38 billion in the quarter as it recorded additional cost overruns on fixed-price contracts for its KC-46 tanker, Starliner spacecraft and other programs. Ortberg ousted the department’s head, Ted Colbert, early in his tenure as CEO.

The plane maker has been hit by recurring crises since a door-shaped panel was blown off a 737 Max 9 model mid-flight in early January. The accident has put a spotlight on sloppy work performance and poor oversight at Boeing. Regulators capped production to stabilize processes and the board appointed new senior management, including hiring Ortberg as CEO in August.

Ortberg wanted to lay out a roadmap for Boeing’s revitalization, filled with the optimism that customers and employees wanted the company to succeed. Boeing also has more than $500 billion worth of aircraft in its backlog, which should support the recovery, he said.

Much of his four-page memo was devoted to changing Boeing’s culture, with Ortberg appealing to pride in past successes, a sense of shared destiny and a drive to work together. That’s a shift in tone and strategy away from the focus on shareholder returns and cost discipline that other Boeing executives have espoused over the past 20 years.

All but one of Ortberg’s recent predecessors were veterans of General Electric Co. under Jack Welch and were reluctant to lay out grand visions for the company or acknowledge Boeing’s past as an aerospace pioneer.

Junk rating

Ortberg also acknowledged that Boeing needs to get its finances in order if it wants to achieve any of its goals. The company recently laid out the first outlines of a refinancing package that could total $25 billion over the next three years, as Boeing looks to prevent its credit rating from falling into junk territory.

“I am confident that we are well on our way to navigating the realities of our business and maintaining our investment grade rating,” Ortberg said.

The three major rating agencies have reviewed Boeing for a downgrade, saying a prolonged strike might force a downgrade of its speculative credit rating. Workers will vote by 5 p.m. (Seattle time) on whether to ratify the tentative agreement. The result is expected to be announced a few hours later. The company’s two previous offers were rejected.

At the same time, Ortberg suggested that a future Boeing will be “a leaner, more focused organization” as he prioritizes what the company can achieve.

Restoring its balance sheet is a prerequisite for Boeing to consider its next airliner, Ortberg said. The aircraft maker has not embarked on a completely new development program since the 787 Dreamliner was launched two decades ago, a risky proposition given the huge investments. Boeing is also six years behind schedule when it comes to certifying the first 777X model and, according to its own information this month, is now scheduled for delivery in 2026.

Boeing said the 787 program is currently producing four units per month and plans to return to five per month by the end of the year.

Rival Airbus SE, which reports results next week, has seen Boeing lose market share, particularly in the widely used narrowbody aircraft sector. Airbus competes with its A320neo family, and the company is largely sold out of that product by the end of the decade. The larger A330 and A350 jets compete with Boeing’s 787 and 777 jets.

– With assistance from Brooke Sutherland.

(Updates with division performance)

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