DAVE CALHOUN is no stranger to crises. Former sidekick of Jack Welch, he was chosen to run GEThe Aircraft Engines and Avionics Division of, months before the terrorist attacks of September 11, 2001 hit the industry. Over the past year or so, as the boss of Boeing, he has faced an even more difficult challenge. The company is only slowly emerging from a 21-month grounding of its best-selling 737 MAXIMUM passenger jet following two fatal accidents. Mr. Calhoun must repair a cracked corporate culture that has contributed to these disasters. If that wasn’t enough, covid-19 has put air travel in freefall and with it airline purchases of planes. On January 27, Boeing reported a fifth consecutive quarterly loss. A record annual net profit of $ 10.5 billion in 2018 turned into a record net loss of $ 11.9 billion in 2020. The aerospace giant delivered 157 passenger and cargo planes last year , 80% less than in 2018 and a third as much as Airbus, half of Europe. duopoly planner. One analyst praised Boeing for beating its previous tally – from 1973.
Mr. Calhoun now thinks the recovery is on the radar. There is certainly good news. Global deployment of covid-19 vaccines brings hope to stranded airlines. The MAXIMUM is back in the air in America and will soon be in Europe. The deliveries of the plane resume. And Boeing got away with a slap on the wrist from regulators for lax safety practices. But the company, which has destroyed $ 140 billion in shareholder value over the past two years, is unclear. Without the worshiping government of the United States, this might never be the case.
Boeing began to stray long before the MAXIMUM disasters. After a merger with McDonnell Douglas in 1997, engineering excellence lost ground in meeting Wall Street goals. Warm relations with the United States Federal Aviation Administration (FAA) enabled the business to self-certify many of its processes; a Boeing employee bragged about “mind-blowing Jedi regulators”. When the MAXIMUM disaster struck, the company botched its response. The strategy of Dennis Muilenburg, Mr. Calhoun’s predecessor, was to make things talk, make suppliers hum and pump more. MAXIMUMes, it doesn’t matter if customers are canceling orders. At the end of 2019, as unwanted planes began to pile up in Boeing’s corporate parking lots, Mr. Muilenburg was thrown from the cockpit and Mr. Calhoun, a ten-year board member, was handed over. the orders.
A combination of bad luck and lousy leadership would have bankrupted many companies. But Boeing is no ordinary company. Before the pandemic, about one in 130 American workers was employed either by Boeing, with a national payroll of 143,000, or by one of its 12,000 local suppliers, with an additional 1 million workers. Despite layoffs in the aerospace industry over the past year, it remains a source of well-paying jobs and, thanks to its weapons and space rocket business, a strategic darling of politicians.
The official desire to keep him aloft was obvious to anyone studying his recent $ 2.5 billion deal with the Department of Justice (DoJ) above MAXIMUM disorder. The actual fine was only $ 244 million; most of the rest was compensation previously awarded to airlines, including MAXIMUM the jets had been pinned to the ground. The company was criminally charged but the prosecution was postponed, sparing it the worst consequences. And while one branch of government sought to punish Boeing, another offered it a backdoor bailout. The Federal Reserve’s flood of capital markets liquidity in response to the pandemic was designed largely with companies like this in mind. As a result, Boeing was able to borrow $ 25 billion from private investors, avoiding the terms of a direct bailout.
Nevertheless, it remains financially fragile. Its gross debt has more than doubled to $ 63 billion in the past year. It burns money faster than the early jumbo jets drank kerosene. Its free cash flow (after taking into account the cost of operations and maintenance of fixed assets) was less than $ 20 billion in 2020. Operational fragility, for its part, extends beyond MAXIMUM. Last quarter, Boeing only shipped four 787 Dreamliners, after wrinkles were found on the plane’s fuselage. Claims for delayed deliveries can result in costs of up to $ 3 billion. Boeing takes $ 6.5 billion charge against another widebody model, the 777X, whose delivery was postponed for three years due to uncertain demand for air transport.
With the stalling of civil aviation, the defense and space division has become the main engine of Boeing. It sold $ 26 billion worth of equipment in 2020, compared to $ 16 billion for passenger and freight jets. National defense budgets are increasing; America has grown by more than $ 90 billion since 2016. But even here, Boeing is crunching. A software error sent its Starliner space capsule off its target, the space station, when it first launched in 2019. This month Nasa had to shut down a new Boeing rocket engine one minute after starting an eight-minute test after a technical glitch.
Cashless in Seattle
All of these issues must be addressed at a time of unprecedented strain on the balance sheet. They force Mr. Calhoun to delay the investment for the future. Boeing’s net research and development spending was almost a quarter lower in 2020 than in the previous year. To save money, it closed a large research center in Seattle, where innovations such as the 787’s lightweight carbon composite fuselage were devised. Boeing’s capital spending fell from $ 1.7 billion in 2019 to $ 1.3 billion in 2020. Despite the pandemic-related reductions, those for Airbus are approaching $ 2 billion, bringing it closer to $ 2 billion. leaves more resources to develop more climate-friendly aircraft.
To have any chance of fighting against Airbus, which recorded 1,200 more orders than Boeing in 2015-19, Mr. Calhoun must restore his cash flow. This will require regaining the trust of customers, many of whom are foreign airlines that will look askance at any sign that Boeing lacks credibility – or its continued regulatory capture of the FAA Where DoJ. They must be persuaded to love the MAXIMUM again, a task made more difficult by new claims that the model’s problems may extend beyond its flight control software. In case of failure, Boeing will always be able to count on its friends in the government to offer a parachute. Whether Mr. Calhoun gets one is another matter. ■
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This article appeared in the Business section of the print edition under the headline “The State Bird of Washington, DC”