The past decade has not been kind to Boeing.
Until 2018, America’s premier aircraft builder appeared extremely successful if money was the only assessment. Boeing also had a solid defense business with billions in military contracts in addition to its space venture. By the end of 2018, the company had more than 5,000 orders for the new 737 Max aircraft. At its peak, Boeing stock traded above $440 per share. With the revenue the company earned each month, Boeing’s Board of Directors could see only one direction: up and more. Melius Research analyst Rob Spingarn estimates the company spent $68 billion on stock buybacks and shareholder dividends to reward investors.
Then came October 29, 2018, when a Lion Air 737 Max 8 crashed into the Java Sea shortly after takeoff from Jakarta, Indonesia. All 181 passengers and seven crewmembers perished in the deadliest-ever crash of a 737. Early on, experts pointed to Boeing’s new flight control software, the Maneuvering Characteristics Augmentation System, or MCAS, as being responsible. MCAS forced the nose of the Boeing down during the climb. The two pilots were unable to recover. Around the world, pilots realized their Max training never mentioned MCAS. Just five months later, another Max 8 was lost within minutes of takeoff from Addis Ababa, Ethiopia, claiming another 157 people. The initial investigation again pointed to MCAS.
The world was in shock, as apparently, was Boeing’s C-suite team. Boeing pointed the finger at the two airlines as being responsible. Following the second crash, global regulators quickly grounded the 737 Max. They didn’t fly again until December 2020. In January 2024, a door plug blew out of an Alaska Airlines 737 during departure from Portland, exposing passengers to the harsh reality of the outside atmosphere until the crew successfully landed the stricken aircraft. No one was injured during the debacle. The cause was an earlier faulty door plug repair.
Since March 2019, Boeing has ousted two CEOs, Dennis Muilenburg and Dave Calhoun, as the company’s quality control system took one hit after another, including on the 787. Boeing’s current CEO, Kelly Ortberg, a mechanical engineer by education, assumed the helm in August 2024 following three decades at Rockwell Collins, where he eventually served as CEO. With Boeing the target of accusations and lawsuits, as well as increased oversight by the FAA and the company’s reputation in tatters, Ortberg had his work cut out for him. Boeing’s Starliner spacecraft returned from the International Space Station (ISS) uncrewed after an onboard systems failure. The spacecraft was deemed too risky to allow the crew to pilot it back to Earth. That crew remains stranded on the ISS to this day. In June of this year, several US Senators told CEO Dave Calhoun Boeing should face criminal prosecution for its behavior in the marketplace. In July 2024, The Justice Department said Boeing agreed to plead guilty to conspiracy to defraud the U.S. government for misleading regulators who approved pilot-training standards for the Max.
Then, in mid-September, 33,000 members of the International Association of Machinists and Aerospace Workers (IAM) Local 751 called a strike against Boeing in Seattle that halted aircraft production, except in
the non-union factory in South Carolina. The union last negotiated a successful contract a decade ago. Analysts warned the strike could be lengthy, with demands for a 40 percent pay increase over four years and a new defined benefit pension plan on the table. There was also the union’s long memory of Boeing’s 2013 decision to move 777x production to South Carolina to avoid union entanglements. A month into the strike, with the union rebuffing both of Boeing’s initial offers, the company announced layoffs for approximately 17,000 other employees to preserve cash.
Boeing has become a global embarrassment, most of all with the company’s 170,000 employees. Boeing shares are today trading at $150 per share as the company tries to raise $10-15 billion in fresh capital to see it through the first half of 2025.
The $68 Billion Connection
Boeing has lost and continues to lose billions of dollars each month. Last week, the US Chamber of Commerce announced, “The time to end this strike is now.” The reason was simple. The Chamber said the seven-week walkout had already cost some 17,000 Boeing workers their jobs, in addition to those of the 33,000 on the picket line. Boeing supplier Spirit Aerosystems will lay off an additional 700 workers. The economic fallout for other Boeing suppliers is only now beginning to be felt, while there seems to be little bright light ahead for the company. The Chamber says their call to end the strike was motivated by the need to protect American jobs.
The Chamber of Commerce has always been an arm of big business and cares nothing about the jobs of these men and women. They want to stop the cash bleed at Boeing. And there’s nothing wrong with that idea, of course. No one wants to see Boeing fail. But insinuating that Boeing will climb out of the pit it dug for itself over the past few decades if the union will capitulate is just silly. After McDonnell Douglas merged with Boeing in 1997, the aerospace giant made a hard right turn, focusing on profits above everything else. It took 20 years for that lopsided strategy to come back and bite Boeing. The Chamber believes settling the strike will solve the company’s problems. Even Kelly Ortberg probably shook his head at this idea.
The only move likely to fix Boeing is a management team that actually believes the ATM that was Boeing can be resurrected, but only with the help of those 33,000 strikers and everyone else on Boeing’s payroll. Dave Calhoun had no idea what to do next, nor did the board he oversaw. Remember, Calhoun was the man who announced the company wouldn’t consider a new single-aisle aircraft before the early 2030s knowing full well the 737 should have been dumped long ago.
The IAM will, of course, settle the strike at some point. But that will only come when union members feel the company realizes what every unionized organization should. The investors bring capital to a company, the money to buy the machinery and the buildings, and the raw materials to begin production. The other side of the equation is no production happens without skilled men and women working the production line to turn management’s vision into the finished airplanes. I believe they call that a symbiotic relationship. In an age of corporate greed, big companies would do well to remember this.
I’ll bet Boeing could use some of that $68 billion the company squandered trying to enrich shareholders over the past 15 years. Thinking about measuring value brings to mind a story I read in Herb Kelleher’s book, “Nuts.” He was, of course, one of the transformative founders of Southwest Airlines. His strategy was simple when it came to how a company should treat employees. “Treat employees like customers.” If customers and employees are happy, impressive financial results for shareholders will take care of themselves.
A Plea to Kelly
Ortberg has an opportunity now to help Boeing find a solution that balances making money with producing quality aircraft and I think Boeing might just have hired the right person for the task. Last week, he outlined a plan of fundamental cultural change that he believes can make Boeing great again. That might include selling off some current company assets like Boeing’s ailing space business. On an earnings call last week, Ortberg acknowledged, “Trust in our company has eroded. We’re saddled with too much debt” and “We’ve had serious lapses in our performance across the company …” Looking ahead, he added that “Boeing still has a half-trillion backlog and thirsty employees to get back to the iconic company they know.” On another positive note, Ortberg recognized that the necessary culture change begins with himself and other top leaders. “We need to be on the factory floors, in the back shops, and in our engineering labs.” He’s already begun making personnel changes to the Boeing Board which is a positive sign.
Here’s a suggestion Mr. Ortberg might try as the leadership team works to settle the strike. Don’t blame employees for this strike. Your predecessors tried that and look what it’s come to. Try meeting face-to-face with employees in small groups, no more than 10 people at a time, to have actual conversations. Try bringing food to these meetings. You’d be surprised at the difference that gesture makes. Most importantly, leave the corporate communications people out of these meetings. While their job is important, everyone knows they’ll want to put a positive spin on those conversations and step in if things become heated around tough topics. That’s OK.
Ortberg needs to hear what employees have to say, and how they say it. Striking employees are already hurting financially. If Boeing should fail, their world will grow even darker than it is right now. I’m convinced employees understand what’s at stake. They also realize the consequences of Ortberg’s failure will be only an embarrassment, and of course, that Golden Parachute will net him more than $40 million.
Rob Mark
___________________________________________
If you’re not already a Jetwhine regular, click the “Subscribe” link at the top of the page.
Leave a Reply