It's never been safer to fly a new Boeing jet.
The current safety struggles at Boeing, and their consequences, are in the eyes of everyone, aviation enthusiast or not. Looking beyond this PR crisis, though, reveals great (and reassuring) insight.
Though Boeing was on track to rebuilding public trust, and strengthening their finances, after a tumultuous half a decade, yet another 737 MAX incident in January set the tone for a hard year at the American jet maker. This time, however, Boeing is going through major overhaul that promises to reap good results, provided they act with due diligence through this PR crisis.
A painful Q1.
Many analysts, and Boeing itself, predicted that 2024 would be the year where the company could take a stronger grip at the market, reach an output of 40 MAX jets per month, and get back on their feet financially.
It was in early January of this year, though, when those hopes vanished. The door blowout of the Alaska Airlines’ 737 MAX 9, which had luckily no victims, was the kick-start to a new PR and institutional crisis, where the eye of the public was again on whether flying Boeing jets was safe or not.
This marked the start of a very painful first quarter for Boeing. On January 12th 2024, the Federal Aviation Administration announced that they would increase oversight into the 737 MAX production line, apart from the grounding of several jets for further inspection. In addition, and probably most importantly, apart from capping the MAX output to 38 aircraft per month, citing that they would not grant permissions for further production expansions, Boeing was ordered to come up with a specific action plan to turn the situation around. Only then, would the FAA evaluate expanding production permits.
With the eyes of the public fully put on the quality of Boeing’s airplanes, there have also been instances of maintenance issues on currently-operating Boeing jets, whose integrity is responsibility of the airlines, where the blame was put by the audience on the manufacturer and not the airline, further pushing the narrative of Boeing airplanes not being safe to fly at all. An example of this is the detachment of a landing gear wheel on a United Airlines’ 777 jet.
The first quarter continued with the resignation of Boeing’s CEO, David Calhoun, who announced at the end of March that he would be stepping off the role at the end of 2024. This came along with the resignation of the company’s Chairman of the Board, and the appointment of a new CEO of the Commercial Airplanes division.
On this regard, Calhoun stated:
“(…) We will remain squarely focused on completing the work we have done together to return our company to stability after the extraordinary challenges of the past five years, with safety and quality at the forefront of everything that we do."
Production slowdown
It is no surprise, as mentioned, that the output numbers have decreased sharply for the MAX family since the beginning of the year. It was reported by Reuters, in fact, that output levels fell to a single digit in the last week of March, well below the imposed limit by the FAA, signaling how meticulous the audit and production oversight process has been. In fact, the process includes the FAA being on the ground at Boeing’s manufacturing facilities monitoring the entire production process.
Due to the nature of the finances of a plane manufacturer, where the majority of the payment is received upon delivery of the aircraft to the customer, Boeing’s cash generation has fell sharply. According to the company’s Q1 report released last month, total sales fell to 16.5 billion, down from almost 18 billion from the same quarter of last year, where Boeing was already facing challenges in production due to supply chain constraints.
Upcoming orders are also affected: while some airlines can afford to plan decades into the future, some others are in deeper need of growth and expansion, as well as fleet renewal. It is for this reason that the 737 type might have become less attractive to these airlines, who are more comfortable seeking to Airbus or the leasing market, as well as customer that are way more risk sensitive.
The effects of this production slowdown are naturally not restrained only to Boeing’s balance sheet. The operation of key and loyal Boeing customers has been greatly affected as well. Airlines like United and Ryanair, heavy reliant on the MAX family for current routes and future growth and expansion, have had to revise their delivery expectations and forecasts for the upcoming years, as well as redesigning their overall strategy for the short and medium term. This results in canceled routes, increased fares, and financial losses.
It is therefore very clear that the stakes are very high for Boeing to get back on track.
The light at the end of the tunnel
The events outlined in this article describe a rather intricate forecast for Boeing. While that may be true in the short term, there is much to be said about where this process is leading the company.
Today, every 737 MAX that goes out the pipeline has seen its production process heavily monitored, and is part of a complete overhaul of the company’s operations, with risk mitigation, safety, and quality in mind. Hence why flying a 737 that has just been produced is safer than ever.
Boeing is therefore naturally undergoing a process of heavy transformation and reform, in which the company seems to know and be willing to swallow the hard pills, such as reviewing faulty processes, or reporting compliance failures. They are necessary to kickstart a virtuous cycle that will result in higher profits and attractiveness to customers, thanks to a solid re-organized foundation that will lead to faster and reliable output.
It is only fitting, then, that this will lead to a slow-but-steady reconstruction of Boeing’s reputation as a leading manufacturer of quality airplanes, as it was for most of its history.
Disclaimer: Views and opinions are my own, and do not represent S&P Global Market Intelligence.
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