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Spokane, Washington  Est. May 19, 1883

Boeing leaders address airplane quality crisis and hit to reputation

By Dominic Gates The Seattle Times

Last year ended better for Boeing than Wall Street had projected. Yet when the earnings details were released Wednesday, the healthy cash flow didn’t seem to matter much now.

“Boeing’s world changed on January 5th when the Alaska Airlines door blew off, and so anything before that date is now of less relevance,” financial analyst Rob Stallard of Vertical Research wrote in a note to investors.

Boeing lost $2.2 billion in 2023, the fifth loss in five bad years, but the best result since 2019. A few weeks ago, that might have been taken as a sign that in 2024 Boeing might finally make it back into the black again. Not now.

Engulfed at the outset of 2024 by crisis and facing a new financial reckoning from this month’s midair fuselage blowout, Boeing CEO Dave Calhoun Wednesday morning acknowledged that reality and dwelt little on last year’s earnings.

“While we often use this time of year to share or update our financial and operational objectives, now is not the time for that,” Calhoun wrote in a message to all employees. “My focus remains on the Alaska Airlines Flight 1282 accident and the actions we are taking as a company to strengthen quality at Boeing.”

A crisis moment

The door-sized plug that blew out on the Alaska 737 Max 9 at 16,000 feet, leaving a gaping hole that frightened passengers, has shredded Boeing’s reputation and hit the company with immediate operational and financial damage.

According to people familiar with the work, the door plug had been opened and then improperly reinstalled in September by Boeing mechanics on the Renton, Washington, final assembly line.

Four bolts that prevent door plug movement were not reinstalled and, over the course of just over two months in service, vibrations on landing and take off gradually shifted the door off the stops that held it in place while pressurized.

The Federal Aviation Administration last week blocked Boeing from making its planned Max production rate increases above the current 38 jets per month until it is satisfied Boeing has its manufacturing quality under control.

And under pressure from lawmakers in the U.S. Senate, Boeing this week withdrew a request to the FAA for a safety exemption on the forthcoming Max 7 model that means the certification and entry into service of both that variant and the follow-on Max 10 will be significantly delayed.

The slowdown in the production ramp-up will reduce Boeing’s cash flow. And it will also have to compensate airlines for the losses incurred during the three-week grounding of the Max 9s. Alaska has said it will ask for at least $150 million.

However, because it’s unclear how long the FAA-mandated block on the ramp-up will last, Boeing on Wednesday could not put a figure on the expected financial hit.

No guidance possible on prospects

Indeed, Boeing decided to postpone any guidance on financial or operational performance for the year, projections it normally provides with the first earnings release of the year.

Boeing’s leaders simply aren’t in a position to see the full implications of what has happened.

Instead, Calhoun spoke of how to get through the crisis, one step at a time, and how it will take “demonstrated action” rather than talk to provide reassurance to the public, airlines, the FAA and lawmakers.

“We will simply focus on every next airplane while doing everything possible to support our customers, follow the lead of our regulator and ensure the highest standard of safety and quality in all that we do,” he told employees. “We will go slow, we will not rush the system and we will take our time to do it right.”

Calhoun referred to the steps Boeing has initiated since the accident to try to strengthen quality controls in its factories and throughout the supply chain by adding more inspections and oversight by its own employees, regulators and airline customers.

“This increased scrutiny – whether from ourselves, from our regulator, or from others – will make us better,” he wrote.

And he expressed his belief in the company’s ability to get through this.

“I want to be clear that we still have every confidence in our recovery. I have confidence in you and I have confidence in Boeing,” Calhoun told employees. “We have a serious challenge in front of us – but I know this team is up to the task.”

As for the 2023 earnings results, Boeing lost $2.2 billion or $3.67 per share last year, a substantial improvement from the loss of $5.1 billion or $8.30 per share in 2022.

In the fourth quarter, the loss was $30 million or 4 cents per share, compared to a loss of $663 million or $1.06 per share in the same quarter of 2022.

And in 2023, Boeing generated a flood of $4.4 billion in free cash flow, up from $2.3 billion the previous year. That cash on hand cut its net debt from $40 billion to $36.3 billion.

Despite the improved financial trajectory, analyst Stallard of Vertical Research told investors Boeing’s “immediate fate is arguably in the hands of the FAA.”