Boeing experiences a rash of issues

One of the favorite phrases among disc jockeys at radio stations in the 1960s was “the hits just keep on coming” as they played song after song. That same phrase could be applied to Boeing in 2022, which has experienced a rash of issues negatively impacting company performance. Last week was not an exception to the tumult in 2022. In the last few days, we’ve seen an unfortunate crash of what has to date been a safe aircraft, the 737-800, in China. While the cockpit voice recorder and flight data recorders have been recovered, it remains premature to determine a cause for the crash. But this crash has the potential to further strain relations with China, which has not purchased any new Boeing aircraft since 2017. China was the first country to ground the MAX after the two crashes, and was the last major country to restore the MAX to operational status in December 2021. As of this writing, China Eastern, a major 737-800 operator, grounded 223 of the type. China has 892 737-800s in service, making it the single largest country operating the type. However, China has not, at this point, mandated a grounding of the type and only China Eastern Airlines grounded the type. While accidents will, unfortunately, happen despite the best efforts of the industry and applying the lessons learned after each crash, the timing is unfortunate for Boeing, which currently faces a number of other challenging issues. MAX 10 likely to be delayed This week media reports surfaced that the FAA does not believe that Boeing will meet its year-end deadline for certification of the 737 MAX 10 with grandfathered components, and also reports that the certification of the 737 MAX 7 also remains incomplete, despite flight tests previously having reported as being complete. If the deadline for the MAX10 is not met, congressional legislation will be required for Boeing to “grandfather” older systems into the MAX 10 cockpit, and installation of an EICAS (Engine Indication and Crew Alerting System) may be required, a very expensive retrofit. This could impact reported negotiations with Delta regarding a potential order for MAX10s. We understand from Washington sources that Boeing has already begun to “educate” congressional staff on the current regulatory deadline and what not extending that deadline could mean for Puget Sound jobs. Indications are that in the post-MAX environment, such a legislative extension appears unlikely to have the bipartisan support needed to pass. 787 issues may take longer to solve These new revelations come amidst continued delays in the ability to deliver the Boeing 787, as each aircraft is individually inspected by the FAA, resulting in airlines seeking used or leased aircraft as new aircraft take too long to produce. The ongoing quality problems with the 787 were initially expected to be resolved by now but appear far from complete given new concerns caused by carbon fiber composite material contamination during fabrication of the wing, fuselage, and tail sections of some aircraft. This may take longer to resolve than previously contemplated, creating a massive inventory (and associated holding and penalty costs) for Boeing as the rash of issues continues to pile up. The FAA expects further delays in the certification of the 777-9 program until mid-2023 that have caused the largest customer, Emirates, to begin to consider alternatives. With large wide-body aircraft becoming out of favor during the pandemic, it remains to be seen if an expected uptick in orders will strengthen a relatively weak order book for the 777-9. After more than eight years on the market, the 777-X has generated only 332 firm orders, a disappointment when compared with the 787 and legacy 777s. The legacy 777s however are, fortunately, performing well and the freighter version continues to be attractive as a 747F replacement. Boeing is still producing the 747 but is down to its last five 747-8F freighter variants in the backlog. The company is late in the delivery of the new 747-based VC26A modes to serve as Air Force One for Presidential transportation, with delays now estimated at 17 months. The 767 program has both good and bad news. A new report calls the KC-46A tanker, based on the Boeing 767, “the worst defense program of all” as it cannot fulfill its primary mission of refueling. But the 767F with new deliveries to FedEx is performing well. Of all the activities of Boeing’s commercial aircraft division, only the legacy 767 and 777 Freighters appear to be delivered smoothly and without any problems. The MAX is delivering, but Boeing has still not regained its production certificate, requiring the FAA to sign off individually on each aircraft to be delivered. This is due to prior quality problems that the FAA apparently feels Boeing has yet to resolve. The rash of issues has become much too lengthy at Boeing not to raise fundamental concerns about their capabilities to recover and the ability of the management team to turn the company around. Boeing remains behind the proverbial 8-ball, as it still has nearly three hundred completed MAX aircraft in inventory that it will deliver by year-end 2023, nearly 100 787s that it cannot deliver until the FAA approves the solution to composites issues, and today is reliant on the 737 MAX8 for most of its cash flow. MAX production has not yet reached its 31 per month target but is closing in with about 27 likely for March. With no 787s being delivered and an uncertain resolution timeframe, all three certification programs behind schedule, and tight cash flow, the company isn’t likely to be profitable in 2022. The solution for the fixed-price KC46A means that Boeing will be eating additional costs, and the 787 problems of contaminated composites may not be an easy solution without substantial additional costs. The Bottom Line There aren’t any quick or easy solutions for Boeing that could magically make the rash of issues disappear. Correcting the issues will take hiring additional engineers and changing the internal culture at Boeing from one of cost-cutting to one of delivering the best products on the market. Boeing thrived as an engineering-driven company, but its culture changed after the merger with McDonnell-Douglas, whose cost-cutting culture it took on. While Boeing hasn’t quite reached the tipping point of no return that McDonnell-Douglas experienced in commercial aviation, it is much closer than many think - dangerously close. The actions taken this year will either secure or add more uncertainty, to Boeing’s outlook at the end of 2022. So far, the rash of issues in 2022 has led to the latter.

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