Boeing, still recovering from the Max 8 accidents, faces a new crisis

Share


After two fatal crashes involving its best-selling 737 Max 8 planes five years ago, Boeing spent billions of dollars to make its products safer and repair its reputation. Now, the company is once again facing a wave of uncertainty and costs following a harrowing incident involving another 737 aircraft.

Just four weeks ago, a hole opened in a 737 Max 9 airliner during an Alaska Airlines flight shortly after takeoff when what appeared to have been a poorly secured panel detached. Alaskan pilots made an emergency landing as terrified passengers feared the worst.

The incident has led the Federal Aviation Administration to indefinitely halt Boeing's ambitious plans to increase production of Max planes. Passengers have filed class-action lawsuits against the company. And some angry airline executives are taking the rare step of publicly criticizing Boeing and expressing doubts about its ability to deliver planes when expected. The CEO of United Airlines has even suggested that his company could cancel some of its orders from Boeing.

A case the company settled with the federal government for $2.5 billion in the waning days of the Trump administration to avoid prosecution could be reopened if the Justice Department determines that Boeing did not comply with the terms of the settlement.

Boeing referred questions about that deal to the Justice Department. A representative for the agency did not immediately respond to a request for comment.

Compounding Boeing's woes, the company said Sunday that a supplier had found a new problem in the fuselages of dozens of unfinished 737 Max planes. In a note to employees, Stan Deal, CEO of Boeing's commercial aircraft unit, said the supplier identified last week that “two holes may not have been drilled exactly to our requirements.”

He did not name the supplier. But a spokesman for Spirit AeroSystems, which is based in Wichita, Kansas, and makes airframes for the Max, said a member of its team had identified an issue last week that did not meet engineering standards.

Deal said the problem was “not an immediate flight safety issue” but would force the company to rework about 50 planes, delaying their delivery.

Those delays, even if brief, could add up over time and lead to lower profits or higher losses for Boeing. The company lost $2.2 billion last year after losing $5 billion in 2022.

There is so much uncertainty surrounding Boeing that last week its executives declined to provide a financial forecast for this year.

“Now is not the time for that,” Boeing CEO Dave Calhoun told Wall Street analysts on Wednesday. “We will not predict the moment. We will not get ahead of our regulator. We will go slow to go fast.”

Since the Alaska Airlines incident, which occurred on January 5, Boeing shares have fallen about 16 percent through the end of last week. They were down about 2 percent on Monday morning following news of delayed deliveries of 50 Max planes.

Stewart Glickman, an analyst at CFRA Research, said Boeing could lose more market share to its main rival Airbus and even much smaller manufacturers like Embraer if the company's manufacturing processes “don't get fixed.”

When the panel, known as a door stopper, flew off the Alaska Airlines plane, Boeing had not yet fully recovered from its latest crisis: the 737 Max 8 crashes that killed nearly 350 people in Indonesia in October 2018 and in Ethiopia in March 2019.

In a financial presentation Wednesday, the company reported paying $400 million to 737 Max customers in 2023, after paying $1 billion in 2022. In total, those two crashes and the grounding of the Max 8 for nearly two years They cost Boeing around $20 billion.

Ronald Epstein, senior aerospace and defense analyst at Bank of America Global Research, estimated that the Alaska incident and its ripple effects (such as sanctions and related oversight expenses) could ultimately cost Boeing's 737 Max program $1 billion. Dollars.

Epstein highlighted several factors that have contributed to the murky outlook for Boeing, including uncertainty around the company's production system, as well as how increased scrutiny on the Max could affect another Boeing model, the 777X, which has already suffered delays in their FAA Certification. He added that it was unclear when the FAA would certify Boeing's Max 7 and Max 10, which are critical pieces of the company's production plans.

“We don't know what the slope of the ramp will be,” he said. “We don't know what the production slope will be. “We just don't know.”

Before the Max 8 accidents, Boeing produced about 52 planes a month. The pandemic brought manufacturing to a standstill, but the company had been slowly regaining momentum. Late last year, the company said it was producing 38 Max planes a month; had said it planned to increase its production to 42 planes per month this year, and to about 50 in 2025. But FAA leadership has put those plans on hold, possibly for many months.

Further complicating Boeing's path to recovery is a smaller, less experienced workforce than it had before the pandemic. As often happens when the economy slows, the company laid off, furloughed and bought out many experienced workers. When production resumed, Boeing had to hire or rehire workers.

But this time, like other companies, Boeing has been unable to bring back many of the experienced workers who left during the pandemic, according to Jason Gursky, a Citi analyst who follows Boeing. Solving the workforce problem, Gursky said, will be critical to increasing production.

Another potential problem for the company is that travelers might be more afraid to fly its planes.

Unlike the Max crashes, which were caused by a failure in the plane's flight stabilizer system, the Jan. 5 incident appears to be the result of a manufacturing error. Employees at the Boeing factory in Renton, Washington, appear to have opened and reinstalled the plug on the door that then exploded at 16,000 feet. The National Transportation Safety Board will release a preliminary report on the incident in the coming days.

The distinction between design and manufacturing defects may not matter to passengers. A January poll by YouGov and The Economist found that 29 percent of Americans rated the Boeing 737 Max 9's safety record positively, while 32 percent rated it negatively; 40 percent said they did not know.

Gursky, the Citi analyst, said the key to Boeing's recovery from its latest setback was simple: getting back to “core business” by following guidelines issued by regulators, as well as hiring more workers and avoiding bad publicity. After all, he said, most passengers are not familiar with the brand of plane they fly on.

“People don't know if they're getting on a Boeing plane or an Airbus when they get on,” Gursky said. “You don't know until you pull the security card out of the seat pocket in front of you.”

Richard Aboulafia, CEO of AeroDynamic Advisory, an aerospace consulting firm, said he was not worried about the company's financial strength, but he was concerned that it was not doing enough to address its challenges.

“There is only one uncertainty: whether or not they will change to avoid irrelevance and possibly worse,” he said.



Source link
Share

Leave a Reply

Your email address will not be published. Required fields are marked *