Boeing has successfully reached an agreement with its striking workforce, marking the end of a 53-day strike. While this development is a positive step towards operational stability, the road to recovery for the aerospace giant remains challenging. With a reported $6.1 billion loss in the last quarter, CEO Kelly Ortberg acknowledges the substantial effort required to restore Boeing's legacy. With a comprehensive four-point plan in place, Ortberg aims to enhance production and quality standards, yet this transformation will necessitate patience and perseverance.
Reinstating stability following the union agreement is just one aspect of Ortberg's strategy. A core challenge lies in increasing aircraft production, which will not occur overnight. Ortberg noted that resuming normal operations could take a couple of weeks due to essential recertification and retraining of returning staff. A report by Morningstar implies that it might take until 2025 for Boeing's manufacturing to fully ramp up. Similarly, Bank of America analysts caution that while ending the strike is significant, returning to full operational capacity will take time.
Boeing is also grappling with broader industry hurdles, notably labor shortages and raw material supply constraints that have affected production. This has culminated in a significant backlog of approximately 5,400 commercial aircraft, valued at around $428 billion. Despite this being less than Airbus's backlog, Boeing faces unique impediments, exacerbated by past safety incidents like the January Alaska Airlines mishap. This incident exposed deficiencies in Boeing's production procedures, leading to restrictions by the Federal Aviation Authority on their 737 outputs, pending improvements in safety and quality.
The pressure is further intensified by Boeing's current production rate, which has decelerated significantly. In the last quarter, Boeing delivered only 92 jets, averaging 30 a month, far below their target of 38 per month by year-end, a target delayed by the strike. As a result, credit rating agencies have sounded alarms regarding possible downgrades of Boeing's bonds. According to S&P Global Ratings' aerospace director, Ben Tsocanos, Boeing's financial stability is shielded temporarily by an equity raise, yet sustained improvement in production and quality remains imperative.
Spirit AeroSystems, a pivotal supplier for Boeing and potential acquisition target, has expressed uncertainties regarding its future viability. This is attributed partly to Boeing's altered production processes which no longer tolerate deliveries with assembly errors. The problematic state of production quality gained attention following the 737 Max incident, where a faulty door plug resulted from inadequate assembly practices, leading to its midair loss.
Boeing faces mounting pressure from clients frustrated by delivery delays, highlighting the urgency to enhance production quality. Ortberg's four-point plan, which includes cultural reforms fostering more factory floor involvement from leadership, aims to address these issues head-on. Ortberg’s decision to center operations in Seattle—the company’s traditional hub—rather than the corporate headquarters in Virginia, underscores a commitment to hands-on leadership.
While there is no quick fix, analysts harbor cautious optimism about Ortberg's capacity to steer Boeing back to its iconic status in the aerospace industry. The path is fraught with challenges, but the CEO's strategic focus provides a foundation for potential resurgence.
