Update 2: IAM 751 members vote 64% to reject the contract offer. The strike continues, no end in sight now. (via Dominic Gates of the Seattle Times.)
By Chris Sloan
Oct. 23, 2024, © Leeham News: Boeing this morning confirmed its previously announced 3Q2024 loss and charges, while CEO Kelly Ortberg vowed to fix what’s wrong at the company.
On the earnings call, Ortberg candidly assessed Boeing’s current state.
“Clearly, we are at a crossroads. The trust in our company has eroded. We’re saddled with too much debt. We’ve had serious lapses in our performance across the company, which has disappointed many of our customers,” a contrite Ortberg said, presiding over his first earnings call since joining the company in August – already what seems a lifetime ago.
With Boeing’s 33,000 machinists voting today on whether to accept the company’s latest contract offer and end the devastating six-week strike, the company reporting disastrous losses of nearly $6bn and a negative 32% operating margin. With questions circling about its liquidity, the stakes couldn’t be higher for a company worth .5% of the entire United States GDP deemed “too big to fail.”
Boeing’s short- and long-term future is at the mercy of IAM District 751. Voting continues to 5pm PDT; results are expected around 9pm PDT. Most observers rate the outcome of acceptance or rejection a toss-up.
The OEM posted revenues of $17.8bn (down 1% compared to 3Q23) with a GAAP loss of ($9.97) per share. Total revenues in the Commercial Airplanes segment fell 5% to $7.44bn. The company reported a staggering $4bn loss in the commercial segment due to a ~$3bn charge attributed to the latest 777X delivery delay to 2026, 767 program termination by 2027, and most significantly the impact of the labor action. Boeing has amassed $47bn in net debt by the end of the third quarter.
The CEO of the embattled OEM laid out a four-point turnaround strategy, that he says is already underway. Ortberg stresses urgency, but seeks patience from investors.
“We have a lot of work to do; this is a big ship that will take some time to turn,” he said. Boeing’s stock price spent the day following the call mostly in the red down by as much as 2% before recovering slightly in late day trading. The broader market was down 1.32% at the same time.
Ortberg places the company’s frayed culture at the top of his hit list, holding the leadership accountable for crucial change: “We need to be on the factory floors, in the back shops and in our engineering labs. We need to know what’s going on, not only with our products but with our people. And most importantly, we need to prevent the festering of issues and work better together to identify, fix, and understand the root cause.”
While the current angry, disenfranchised, striking workforce is the elephant in the room, the Chief Executive lamented that the formerly vaunted culture’s disintegration is the victim of “most of the folks who lived in that culture have retired or moved on, so our culture change here is really got to be for the entire company.”
The recently announced 10% workforce reductions appear not to involve engineering or production personnel. Ortberg maintains the lay-offs rationale is not only a cost-saving measure designed to remove overhead and inefficiency, which slows things down.
He did not rule out external hires, alluding to replacing the ousted former CEO of Boeing’s defense unit with an outsider. He did not mention the executive leadership at the Commercial Airplanes unit.
The second pillar of the turnaround dove-tailed into stabilizing the business. “We have some really big rocks that we need to get behind us to move the company forward,” said Ortberg, not mincing words. His goal is not only IAM labor’s acceptance of the package and getting back to work but also “resetting the relationship, so we don’t become so disconnected in the future.”
He clearly hopes to avoid the lingering acrimony following previous bitter strikes in 2008 and contract negotiations in 2014, whose chickens came home to roost in the form of revenge.
Restarting the factories and supply chain will be a daunting task.
“It’s much harder to turn this on than it is to turn it off. So, it’s critical, absolutely critical, that we do this right. Our Safety and Quality Management Systems will guide us through the restart, and we have a detailed return-to-work plan in place,” he said.
During Q&A, the CEO predicted restarting the supply chain would be a “bumpy return” but that they’ve tried to manage the pause “as best as they could” by keeping some suppliers “hot” to allow some to catch up, become healthier, and mitigate the risk of turning off the larger companies.
“It’s not like we’ve been out on strike for a long period, such that someone’s decommissioned a factory, closed a foundry, or shifted a balance of their workforce. There are some furloughs like we have experienced,” he added.
When the strike finally ends, production won’t recommence immediately. “It will probably be a couple of weeks to bring the (IAM) members back.”
Then, the company will have to mount a recertification and a retraining effort for those who were trained on their jobs and didn’t get enough time on an airplane before they went out on strike. “It is so much more important that we do this right than fast coming out of the chute.”
Execution discipline
The third pillar is improving the execution discipline of Boeing’s new platforms.
“We have to be better at understanding and managing the risks on these projects more proactively. This includes disciplined program and risk management in all phases of the project, including the bid phase.”
Boeing Defense Systems’ (BDS) money-losing, overbudget contracts were singled out without naming specific programs. “These are troubled contracts. I don’t think we’ve been doing enough work with our customers to figure out how to de-risk these things before they turn into an overrun. We’re not going to be able to just wave a wand and clean them up,” he said. As an aside, he ruled out selling or walking away from existing contracts.
In the fourth area, headlined “Building a new future for Boeing,” Ortberg planted green shoots for the long-awaited clean-sheet airplane.
“Boeing is an airplane company, and at the right time in the future, we need to develop a new airplane. But we have a lot of work to do before then.” This includes stabilizing the business, improving the execution of the development programs, streamlining the portfolio to “do what we do well,” and restoring the balance sheet so that the company has the financial resources and wherewithal to the next commercial aircraft.
Program Updates
BCA delivered 116 airplanes in the quarter, even with the strike consuming over half of it. The still intact massive backlog valued at $428bn of more than 5,400 aircraft was totally clouded by a quarterly negative operating margin of 54% at the company’s traditional cash cow business.
The 737 MAX program delivered 92 aircraft in the quarter, with 60 737-8s from existing inventory built prior to 2023 going to key growth markets China and India. (The math concludes that the new-production rate of the 737 averaged 12.8 airplanes per month over the 2.5 months before the strike shut down production on Sept. 13.)
CFO Brian West said it is still the plan to increase Renton’s rate to 38/mo by years’ end. The third Final Assembly Line (FAL) was progressing well until the strike.
“Those objectives will now take longer due to the IAM work stoppage. Our expectation is once we get back to work, we ramp production and move through next year, we will get back on track, and then we’ll be having discussions with the regulator about increasing beyond 38 per month,” he said.
The CEO curbed the enthusiasm a bit. “We’re not increasing our rate when we’re not ready. We’ve got our safety and quality management plan in place; we’ve laid that out with the FAA and we monitor a lot of key metrics within our production system. Those metrics have to be trending in the right direction, and they have to be meeting certain thresholds for us to achieve.”
The 737-7 and 737-10 inventory levels remained stable at 35 in storage, with no changes to certification timelines.
The 787 program, which remains in production in North Charleston with a non-unionized workforce, notched 14 deliveries (with some coming from existing inventory) as the company worked through production recovery plans on heat exchangers and delivery delays associated with seat certifications.
The program is currently building four airframes per month off the FAL and still plans to return to five per month by the end of 2024 – light years behind pre-pandemic levels which peaked at 14 per month before production completely shifted to South Carolina.
BCA ended the quarter with 30 787s in inventory built prior to 2023 that required rework down from five from last quarter.
There has been no update to the 777 program status since the $2.6bn write-down and 777-X delay announcement two weeks ago. “Year-to-date 777-X inventory spend has averaged a bit below $800m per quarter,” West disclosed.
The debt balance remained stable, ending at $57bn. Last week, Boeing entered into a new $10bn short-term credit facility, bringing access to credit facilities totaling $20bn, that the company has yet to draw on.
“We expect free cash flow to be a usage driven by the timing of return to work, the pace of our production ramp, and the unwinding of inventory in the balance sheet. While we expect 2025 to be another use of cash, we anticipate a significant improvement over this year,” West reported. The company is focused on maintaining $10bn of cash and its investment grade level credit rating. West forecasts significant cash flow to turn positive in the second half of 2025, and gain momentum in 2026.
Boeing’s CEO dismissed any talk of spinning-off the core Commercial Airplanes and Defense Systems, but many other parts of the portfolio will receive scrutiny.
“We’re better off doing less and doing it better than doing more and not doing that well. We’re in the process of taking an evaluation. There are probably some things on the fringe there that we can be more efficient with or that just distract us from our main goal. I don’t have a specific list in my hand today,” Ortberg said.
Folding Spirit AeroSystems back into the Boeing fold remains on track for next year. Before the strike, Boeing saw improvements in the fuselages coming out of Wichita. Once the strike ends, Boeing says it will really unlock “step change” improvements once Spirit is integrated into the mothership. Spirit is not immune from the strike (having just recently resolved its own labor action). Officials announced furloughs 700 personnel last Friday or about 5% of its US workforce. “If the strike continues beyond November, we will have to implement layoffs and additional furloughs,” a Spirit spokesman told CNBC.
Boeing Global Services provided a rare bright spot to the company’s earnings, with revenues climbing by $100m YOY to $4.9bn – increasing its operating margin from 16.3% to 17%. With orders at $6bn, and a backlog of $20bn, BGS is the golden child.
“They’re doing really well. Chris Raymond (the BGS CEO) and his team are executing, and the one thing I want to do is just help them make sure they get all the support from the corporation they need to continue,” said Ortberg. Nevertheless, the BA Chief Executive says there is always room for improvement in services, too .
In the face of a brutal situation, Ortberg struck an optimistic note “Boeing has the capacity to be great again. Getting back to the values that helped define this legacy is what will define our future.” Of course, everything has a big asterisk, depending on when the final IAM 751 votes are counted tonight.
I find the CEO message page interesting, for 4 reasons.
1) Voice. The intro and the prepared message feel the same. They feel like an authentic individual voice. Which for me is good.
2) Editing. Sloppy. Basic grammatical and logical vagueness issues that no decent PR/comms/advice person I know would have let pass. The logical especially, with “Culture is driven by values, and we’ll redefine those” early on but signing off with “Getting back to the values that helped define this legacy is what will define our future”. Which is it? Values they’ve already had or coming up with new definitions?
3) Values. Glad he puts it front and centre.
4) Rhetoric heavy, action lite. I hoped Ortberg would provide at least some framework & meat.
From he 3Q24 presentation, why draw attention to BCA orders by omitting them?
Missed it by “that much” Quote from Get Smart I believe
These union workers put their life on the line every day. When I worked there the management was so dumb all they cared about was beans. You want the strike to end give them what they want there pension back. They will go to work tomorrow. The 737 is there cash cow. They use all that money for their management bonuses, share that money with the union & there pensions and your issues will be over. Change the culture & let’s go back to work.
Whoever compiled the CEO’s “prepared statement” is good at talking without actually saying anything.
Let’s play a game of Bullsh#t Bingo with the “content”, featuring meaningless syntax such as:
“we are at a crossroads”
“thirsty to get back to the iconic company we know”
“we have great opportunities ahead”
“my mission here is pretty straightforward”
“we must build a new future for Boeing”
“I know culture change starts at the top”
“culture is driven by value”
“I remain committed to getting the team back”
“another big rock to stabilize the company”
“I’m encouraged with the progress we are making already”
“we need to reset priorities”
“focus on consolidation”
“I’m excited about the opportunity”
Congratulations, Kelly — you’re even better at generating word salad than Dave was.
Meanwhile, the ship is going down hard by the keel, and the captain is busy varnishing the decks.
word salad continues.
Wheres the meat!?
I got up early for that. I’d have known as much if i had stayed in bed.
Why would you get up early just for this?
My same thought.
What counts is the strike vote and have seen nothing yet
BCA: loss of $4B (revenue $7.4B)
BDS: loss of $2.4B (revenue $5.5B)
BGS: profit of $800M (revenue $4.9B)
As percentage of revenue:
BCA: 54% loss
BDS: 43% loss
BGS: 17% profit
Debt interest is now up to $728M per quarter.
Cash and marketable securities: $10.5B
BUT: accounts receivable minus accounts payable equals minus $9.373B — so, effectively, the kitty is empty in the (very) short term.
https://boeing.mediaroom.com/2024-10-23-Boeing-Reports-Third-Quarter-Results
Inching closer and closer to Chapter 11.
And remember that the strike only comprised 2 (of the 12) weeks of Q3.
Q4 already comprises 3 strike weeks, and deliveries are now hovering around zero.
When will Pope get her pink slip?
Yes, that curious situation is one to watch.
@Smitty:
Shrug. Mixed positions on her and nothing has occurred recently that is a plus or a minus as near as I have seen.
If and when something happens we will know. Until then we won’t
It would be irresponsibe not to speculate.
There certainly have been a lot of negative comments about Stephanie Pope, but I have not gained a clear understanding of why people here are so negative.
I understand the desire to have some engineering talent at the top, but in my own career, as an engineer, I have worked for a number of people who were not engineers, but played a great part in giving me the freedom to get on with engineering and not have to worry about anything else. While I had to explain my engineering decisions the people that I really enjoyed working for were very adept at distinguishing when someone didn’t really know what they were talking about. When you explained an issue they would go to the end of the earth to get the resources you needed.
I think the maxim of one former president is very often the truth “If you can’t explain the problem on one sheet of paper, you don’t understand the problem “ If explaining the problem requires a power point ranger, you know you are in trouble!
I’d really be interested to hear from someone who has worked for her, and can give some insight.
https://events.q4inc.com/attendee/144793710
For those who actually want to hear the earnings call from management instead of pontificating.
Todays vote will be very, very interesting…
I am thinking a solid NO.
We will know when it happens.
I tend not to make predictions.
“Boeing CFO Brian West said the both shadow factories for the 737 and 787 will now shut down only next year, the result of the work stoppage.
Late September, there were 60 MAX 8s in inventory, -30 from Q2, and 30 787s (-5). Dreamliner rate to go to 5/m this year.”
https://x.com/rschuur_aero/status/1849100912490422695
Q3:
“.. Operating cash flow was $-1.3bln, free cash flow $-1.956bln.”
https://x.com/rschuur_aero/status/1849053668852564390
By “Shadow factories” are we to presume Moses Lake and any Everett spaces doing rework from BSC?
Yup
Mosses Lake is currently Clear. Tomorrow some fog so maybe shadowy then
Seattle is partly cloudy so I guess somewhat Shawowy
All quiet in Boeing Renton, Everett etc.
Ortberg: “We’re saddled with too much debt.”
Ortberg’s solution so far:
– Play chicken with IAM, thereby clocking up billions of dollars of cash bleed, with attendant severe erosion of liquidity;
– Take on yet another $10B of additional debt.
Inspiring logic 👍
Nice to have inside information I guess.
Nothing I have read indicates if its Ortberg, the Board or a combination of the two that are making the decisions.
Cash bleed will continue through next year:
“Boeing warned that its operations will continue to burn cash through next year, pushing back the timetable for when the manufacturer can stem its financial bleeding.”
https://www.wsj.com/business/airlines/boeing-ba-3q-earnings-report-2024-f27acebb
Boeing: “This time we really mean it.”
[cough]
Look on the bright side — it’s a free pantomime every quarter 🤭
All-singing, all-dancing WaffleFest.
😉
Also in today’s news:
“Boeing’s bad year just keeps getting worse: One of its satellites has exploded in orbit, with debris becoming a potential threat to other satellites”
“Intelsat, the owner of the satellite, is reporting “the total loss” of the device in an update on its Website. The company is working with Boeing and government agencies to determine the cause of the mishap.”
“ExoAnalytic Solutions told SpaceNews it was tracking 57 pieces of debris and was warning operators of spacecraft that could be at risk of collision. And Russia’s space agency said it was tracking more than 80 fragments.”
https://fortune.com/2024/10/23/boeing-satellite-explodes-in-orbit/
Pay attn to the last thirty seconds (or last one minute) or so. 😂
https://m.youtube.com/watch?v=U6s49nFeaNg
I wonder if the stonk would be lower if the equity raise??
after* the equity raise
Sigh
“As Machinists vote on the strike, Boeing reported a $6.2B loss & the new CEO laid out his vision
Ortberg made an optimistic pitch at a dire moment to a nervous audience, with many employees worried about their future”
https://x.com/dominicgates/status/1849158774604673063
As Boeing Machinists vote on the strike, new CEO lays out his vision
https://t.co/TWg2tWeMBo
‘Ortberg outlined his high-level strategy with few details.
“It will take time to return Boeing to its former legacy, but with the right focus and culture, we can be an iconic company and aerospace leader once again.”’
‘He acknowledged that though Boeing’s historic culture was “once a benchmark for what good culture looks like” it’s been a long time since that was true.
“*Probably most of the folks who lived in that culture have retired or moved on*,” he told analysts.’
“A good first impression”
or
A plan that’s “thin, with some platitudes.”
The job cuts may hit parts of the business judged to be “non-essential” and will also target management and administrative layers more than front-line machinists and engineers.
“I wouldn’t think of it like we’re going to take people off production or out of the engineering labs”
“…CEO lays out his vision.”
What “vision”?
And wouldn’t a “plan” be better than a “vision”?
And wouldn’t tangible “action” be even better than a “plan”?
Mister Ortberg should show us rather than telling us, because we’ve Heard it All Before from that
outfit’s C-suite.
#unconvinced
#”iconic”
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Nice!
And now we know
BA will draw down its credit facility. Will see when they can finalize the deal(s) to raise fund.
I’m starting to think that the still massive backlog at BCA, valued at $428bn of more than 5,400 aircraft, might actually be a liability?
Boeing will now have massiv cost increases from suppliers, and higher personnel costs etc. Who knows how cheap those aircraft in the backlog have been sold, in order to win the contracts. And all the penalties for late deliveries will make it hard to make profits, when delivering aircraft from the backlog.
That’s $428B of *revenue* value.
It has basically zero *earnings* value, due to excessively thin margins (thanks to over-discounting).
WSJ just reported mechanics rejected the contract with 64% voting no.
I really wish Calhoun was still “in the house” to have to deal with this IAM contract mess that he and his bro McNerny created.
I wonder what kind of brain dead nonsense Calhoun’s PR people would craft for him to sully with his signature. Something like:
“We will continue working as hard as we can to reach an agreement that recognizes both the value of our employees and the needs of our company.”
Now if we could read his actual thoughts or if he were forced to disclose them like Jim Carey in Liar, Liar, the translation would be:
“The value of our employees? It’s zero! Bunch of loser peons! I could fire the lot of them and replace them with guys from any third world country for $8 an hour! The only reason I haven’t done it already is all the ITAR restrictions. Besides any money we give these losers comes straight out of future cash flow for stock buybacks which will cut into the market value of the gazillion shares I was given. The only solution is to fully automate the factory and replace all these losers with robots.”
Of course, this is all hypothetical cause Calhoun is gone now.
Regarding Ortberg’s vision statement, I’m happy to see he mentioned risk management:
“We have to get better at understanding and managing the risks in these programs…..”
That was something I was harping on with the McNerny – Calhoun beancounter regime. There seemed to be zero consideration of risk.
For example, suppose the bean counters identify a way to reduce up front cost of a program by $100m, but what is the likely impact of this change on program execution? Suppose this change would introduce a 50% chance of a program failure creating $400m in additional costs. Then the value of the added risk here is .5 x $400m = $200m, which is greater than the upfront savings of $100m.
Conclusion: do not make the change in question.
Seems like the Calhouns of the world blithely assume the risk associated with any change is zero, so they will always do whatever looks cheapest in up front costs.