Boeing’s Calhoun focused on transparency in face of $636 million loss

Avatar for Ken PoleBy Ken Pole | January 30, 2020

Estimated reading time 4 minutes, 14 seconds.

As The Boeing Company struggles with arguably the worst crisis in its 103-year history, digging out of a financial black hole left by the worldwide grounding of its popular 737 Max series, its new president and chief executive officer, David Calhoun, remains optimistic about recovery.

The latest cost of the 737 Max fleet being grounded and production and deliveries suspended is projected to be $18.4 billion. Boeing Photo

“We have a lot of work to do,” he acknowledged during a Jan. 29 conference call with industry analysts and media after only 16 days on the job. “I’m confident we’ll manage the situation. . . . We will be transparent in everything that we do.”

During the call, the aerospace giant reported a full-year net loss of $636 million, its largest on record and the first in more than 20 years. In addition, Boeing appears to be grappling with issues surrounding other aircraft programs as well, announcing that it plans to slow production of the 787 Dreamliner to 10 per month — down from 12 — next year.

Calhoun said in a prepared statement ahead of the call that Boeing is “focused on returning the 737 Max to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public. . . . Safety will underwrite every decision, every action and every step we take.”

The global Max fleet was grounded last March after two crashes in five months – October 2018 in Indonesia and March 2019 in Ethiopia – killed 346 persons. It has been generally acknowledged that a flight control system software conflict was the underlying cause of the catastrophes.

The latest cost of the fleet being grounded and production and deliveries suspended is projected to be $18.4 billion as the Chicago-based OEM waits for regulators to green light the aircraft’s return to service, which Calhoun expects in mid-2020.

Boeing president and CEO, David Calhoun. Boeing Photo

In the meantime, Boeing is taking on some $12 billion in new debt to support its recovery. A key element of the overall cost of dealing with the Max fallout is $4 billion identified as “abnormal production costs,” most of them to be incurred this year. This includes supporting Max program suppliers.

There have been layoffs at some U.S. suppliers with more expected as a return to Max production and deliveries remains stalled. There are more than 600 Boeing suppliers in Canada but the impact on them could not be ascertained by Skies in the immediate aftermath of the conference call.

“We’re engaged at all tiers of the supply chain and have been for quite some time,” Greg Smith, Boeing’s chief financial officer and executive vice-president of enterprise performance and strategy, added during the call. “It’s in all of our best interests to make sure they are healthy.”

Counting on Boeing’s services division and its defence, space and security division to provide some overall relief from the impact on its commercial aircraft division, Smith pointed out that there is a seven-year backlog of some 4,400 aircraft in 737 production.

However, there’s also the challenge of regaining trust in the Max platform. A Bank of America Merrill Lynch survey of more than 2,000 respondents in December indicated that two-thirds would wait at least six months before flying again in a Max. Some said that if given an option, they would choose another aircraft.

“I wish the moment was different, but . . . we will get through this,” Calhoun said, apologizing to the families of the Lion Air and Ethiopian Airlines crashes and adding that he expected to be doing so “many, many times” as the investigations and legal fallout continue.

 

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