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June 14, 2024
Boeing HQ
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Today’s key stories related to Boeing center on David Calhoun’s pay package amid poor corporate performance, concerns being raised over Boeing’s planned acquisition of Spirit AeroSystems, and speculation regarding whether Warren Buffett, who has a large amount of cash looking for an acquisition, might consider Boeing.

In other stories, Qatar Airways new chief is critical of Boeing aircraft delays and not being tough enough with suppliers, while report that summer holiday schedules could be curtailed due to a shortage of aircraft amid the Boeing and Pratt & Whitney quality problems.

Links to today’s key stories follow:

  • Should Boeing’s CEO get a 45% pay raise for a 45% failure?  Inside his controversial $32.8 million pay package – Entrepreneur
  • Boeing’s planned buy of Spirit AeroSystems raises concerns as DOD officials weigh in – Aviation Week
  • Airframers should be tougher on suppliers to address delivery delays: Qatar Airways chief – Flight Global
  • Could Warren Buffett buy Boeing stock? – 24/7 Wall St
  • Biggest plane shortage ‘since 9/11’ could spell holiday misery this summer – Mirror
  • Renaissance Technologies, Two Sigma among funds that dumped Boeing in first quarter- Reuters

The Bottom Line

It is clear that Boeing’s operational and financial performance has been a major failure, with unresolved problems in each of Boeing’s major programs, investigations by multiple regulatory agencies that will lead to sanctions and potentially criminal charges, and significant financial losses for the company.  CEO David Calhoun, who was effectively forced out by airline customers asking to meet the Board without him present, is a lame duck manager after announcing his retirement by year-end.  His financial package is now being criticized as too generous given the deep problems with the company, and may merit being revisited by the Board.

The industry rumor mill that Warren Buffett is looking at the company as a turnaround opportunity may depend on how well Boeing’s search process is progressing and whether the culture can be changed.  There is underlying value at Boeing that current management has been unable to capitalize on that a strong management team could overcome.  The question is whether Berkshire Hathaway has the patience and expertise to effect a turnaround in a company whose culture has toxically evolved over the last 27 years.

Meanwhile, Renaissance Technologies,Two Sigma, and Arrowstreet Capital are among funds that closed their Boeing investments in the first quarter.  The major divestment of equity interest by these funds indicates a lack of confidence in the future of the company by many Wall Street investors, who now view Boeing as a long-term turnaround opportunity rather than an investment for quick profits.

Concerns over the Spirit AeroSystems acquisition have emerged regarding the defense side, as Boeing will become a supplier to competing entities.  On the commercial side, Airbus assets will be spun off, but no such discussions of defense assets have arisen.  Given Spirit’s non-viable position, there may be no choice available other than the Boeing acquisition.  

Defense was Spirit’s highest growth segment, however, and represents a potential growth opportunity for the company, whether independent, spun out, or at Boeing.  The acquisition is more complex than it appears on the surface, particularly with classified programs involved made by Boeing competitors.

Finally, Qatar Airways President suggests that Boeing be tougher on the supply chain.  While we agree with the sentiment, that would likely be the wrong approach.  These companies have endured the up and down volume changes during the pandemic, the “great retirement” and loss of key personnel, and a changing production landscape at Boeing, who produced only 9 newly built 737 MAX in April.  

Boeing is investing in inventories, enabling suppliers to continue to produce to planned volumes to maintain financial viability.  Without that support, it is likely that many more suppliers, beyond Spirit AeroSystems, would fail.  The effects of the global pandemic remain, but will take time to fully recover.  Boeing is supporting its supply chain, and recognizes the difficulties even one missing part can have on programs, as evidenced by the Russian-built heat exchangers used on the 787 that are causing a production shortfall.  Managing a supply chain this complex is not an easy task, and Boeing is actively working the problems to increase production rates.

author avatar
Ernest Arvai
President AirInsight Group LLC

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