Leeham News and Analysis
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Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 28. Wrapup. October 11, 2024
- Boeing strike hits suppliers, Airbus steps in October 10, 2024
- Boeing-IAM contract talks fail, no new negotiations scheduled, no end in sight October 9, 2024
- Boeing 3Q deliveries up despite strike October 8, 2024
- Strike slows Boeing’s march toward improving safety culture October 7, 2024
Boeing’s orders and deferred production costs: a deeper look
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By Judson Rollins
Introduction
Feb. 5, 2023, © Leeham News: After last week’s release of the 2023 annual report for Boeing, we undertake our annual analysis of at-risk deals on the OEM’s books.
This year, we also look at Boeing’s deferred production costs in light of the well-documented commercial aircraft production issues. During the company’s earnings call, Boeing CEO David Calhoun and CFO Brian West discussed plans to close its “shadow factories” or rework facilities for the 737 MAX and 787. Calhoun said, “In our shadow factories, we put more hours into those airplanes than we do to produce [them] in the first place.”
These growing rework costs appear to be classified as deferred production costs to keep them from affecting Boeing’s announced profits. We explain below.
Summary
- Program accounting hides ballooning program costs.
- War and geopolitical tensions increase regional risks.
- Certification delays to the 737-7 and -10 significantly increase Boeing’s MAX order risk.
- The 787 order book is relatively healthy despite geopolitical and customer risks.
- 777 & 777X orders are weighed down by geopolitical issues and a soft cargo market.
Boeing records loss in 2023, but better than expected results; no guidance for 2024
By Dan Catchpole
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Jan. 31, 2024 © Leeham News: Boeing posted a $5.8B loss in 2023, a substantial improvement over the previous year’s $11B loss. Boeing Commercial Airplanes even posted a $41M profit in the fourth quarter–the first profitable quarter since the beginning of 2019.
However, any progress made last year was erased on Jan. 5, when a door plug blew out on a two-month-old 737-9 MAX at 16,000 feet over Portland. An empty passenger seat was ripped, but nobody died and physical injuries were light on Alaska Airlines Flight 1282.
In an earnings report conference call with financial analysts, Boeing CEO David Calhoun said definitively that the accident was Boeing’s fault and that steps are being taken to ensure it never happens again.
Calhoun’s statements echoed similar declarations he made after taking over in 2019 as chief executive amid the MAX crisis following two fatal crashes.
Those crashes put the 737 program under global scrutiny.
“I’m still trying to get my head around how we got here,” Bank of America financial analyst Ron Epstein said during the call. After the two crashes, “wasn’t the 737 line, like the most scrutinized production line in the world? So, what happened to get to where we got today?”
Summary
- Boeing withdraws exemption request for 737-7
- Vague guidance for 2024
- More mea culpas
Instead of progress, Boeing must deal with new crisis of Alaska Flight 1282 on Wednesday’s earnings call
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By Scott Hamilton and Judson Rollins
Jan. 29, 2024, © Leeham News: Twenty-twenty-four will be a crucial year for Boeing.
A door plug blew off a Boeing 737-9 MAX Jan. 5. The company must deal with the fallout on its 2023 year-end earnings call Wednesday. Credit: Capt. Chris Brady.
An unexpected twist is the crisis from Alaska Airlines Flight 1282, in which a door plug blew off a 737-9 MAX at 16,000 ft. Nobody died, and injuries were light. But the MAX 9 fleet was grounded in the US by the Federal Aviation Administration. The FAA launched a formal investigation into the “quality escape” that is believed to have led to the accident. Last week, the FAA put a freeze on current production rates of the 737 and, for now, killed Boeing’s plans to add a line at its Everett (WA) plant.
Beyond dealing with the 1282 aftermath, Boeing hopes this year to clear its inventory of 737 MAXes and the 787. Clearing the inventories brings cash and some profits. But will this move to the right while Boeing is under even more scrutiny by the FAA?
Boeing planned to be positioned for 2025 to pay down debt incurred during the MAX grounding and the COVID-19 pandemic. Progress toward free cash flow targets of $10bn per year by 2025/26 was forecast at its Nov. 2, 2022, investors day. This is almost certainly inoperative.
Culture key to latest Boeing MAX crisis: panelists
By Scott Hamilton
Special Coverage of the Boeing crisis
Jan. 24, 2024, © Leeham News: What began as a non-fatal accident with an Alaska Airlines 737 MAX 9 on Jan. 5 has blown into a full crisis for Boeing. The company was once considered the gold standard of commercial aviation.
Today, 171 737-9s remain grounded in the US by the Federal Aviation Administration (FAA). There is no end in sight as the FAA and National Transportation Safety Board (NTSB) investigate the accident of Flight 1282 in which a door plug (an inactive emergency exit) blew off the 10 week old Alaska MAX 9 on climb out from Portland (OR).
It is the second time the MAX has been grounded. All MAX 8s and MAX 9s were grounded from March 2019 for 21 months. This grounding only affects the MAX 9.
Evidence points to Boeing quality assurance flaws in final assembly. An anonymous Boeing employee posted on LNA a detailed scenario how Boeing failed its own processes in final assembly of the Alaska plane. (His post follows this article.)
The FAA is booting more inspectors on the ground at the 737 Renton factory. On Jan. 24, Boeing shut down the 737 assembly line for a “safety stand down.” CEOs of Alaska and United airlines, the two US carriers with the 171 MAX 9s on the ground, publicly eviscerated Boeing.
Related Articles
- Errors at Boeing (Seattle Times)
- Unplanned Removals, Installation Process at Boeing (Leeham News)
- Boeing turns to Admiral for the second time (Leeham News)
At the first aviation conference following the Alaska incident, the Aviation Week suppliers event, some speakers called for leadership changes at Boeing.
Pontifications: Boeing turns to US Navy Admiral for second time in MAX crises
Special Coverage of the Boeing crisis
Jan. 23, 2024, © Leeham News: When in trouble, Boeing turned to a retired US Navy Admiral for the second time.
By Scott Hamilton
Last week, CEO David Calhoun announced that Adm. Kirkland Donald was named as special advisor to Calhoun. “Donald and a team of outside experts will conduct a thorough assessment of Boeing’s quality management system for commercial airplanes, including quality programs and practices in Boeing manufacturing facilities and its oversight of commercial supplier quality,” Boeing said in a statement.
It’s the second time Boeing turned to an admiral in connection with 737 MAX crises. In September 2019, the company turned to one of its Board of Directors members, Adm. Edmund Giambastiani, to head a new board-level safety committee to review a plethora of safety items in Boeing Commercial Airplanes. Then-CEO Dennis Muilenburg asked the Board the previous April to establish a Board committee to review Boeing’s safety practices and recommend next steps.
At the time, the MAX had been grounded for six months, with no end in sight. (Another year and two months would pass before the Federal Aviation Administration recertified the MAX.)
Donald and Giambastiani came from the nuclear navy, where safety measures are among the world’s best. Since the creation of the nuclear navy, there have been only two instances where ships were lost—and neither of them was directly related to nuclear power.
The submarine USS Thresher was lost on a test dive in 1963. The submarine USS Scorpion was lost in 1968. The Thresher’s loss was traced to disastrous flooding at a depth from which the sub could not overcome the flooding to surface. The Scorpion’s loss remains controversial to this day. Some believe it was sunk during the Cold War by a Soviet submarine. Others believe a torpedo suffered a “hot run” accident in the torpedo room and blew up before it could be disarmed.
Certifications of MAX 7 and 10 may take hit from 737-9 grounding
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By Scott Hamilton
Jan. 22, 2024, © Leeham News: The grounding of the Boeing 737-9 MAX is likely to delay certification of the 737-7 and 737-10, customers fear.
At a minimum, certification of the 737-7 is likely to shift by months, customers suggest. Certification of the MAX 7 has been repeatedly shifting. Boeing hoped that certification would be achieved in 2022 or 2023. It’s now 2024. In December, Boeing asked the Federal Aviation Administration (FAA) for an exemption to safety standards for a deicing of the leading edge of the composite engine nacelle. There already was opposition from some pilot unions to this request. Now, with the Jan. 5 grounding of the MAX 9 due to the Alaska Airlines Flight 1282 decompression, some believe this exemption won’t be granted.
Flight testing for the MAX 7 is all but done. Boeing hoped to deliver the first MAX 7s to launch customer Southwest Airlines this year.
Flight testing for the MAX 10 is in its early stages. Certification processes were suspended during the MAX grounding, which ended in November 2020. Testing has been slow since because there are only a few MAX 10s available for testing, and due to the slow certification process for the MAX 7. One MAX 10 customer fears certification will be delayed 6-12 months. This would shift deliveries from early 2025 to later in the year or into 2026.
“Unplanned” removal, installation inspection procedure at Boeing
By the Leeham News Team
Jan. 15, 2024, © Leeham News: It’s not supposed to happen.
The door plug on the Boeing 737-9 MAX isn’t supposed to separate from the airplane in flight, as it did on Alaska Airlines Flight 1282 on Jan. 5 this year.
There is conflicting reporting whether the emergency exit or door plug is opened on the Boeing 737 final assembly line for access to the interior. Examining Google images, two photos show the exit or plug closed while over-wing exits are open. Credit: Unknown.
The investigation by the National Transportation Safety Board (NTSB) is in its infancy. Early evidence suggests four bolts intended to prevent the door plug from shifting in its attachment brackets either failed or weren’t installed. Inspections after the 1282 incident by Alaska, and United Airlines found loose bolts in other MAX 9s. The Federal Aviation Administration (FAA) on Jan. 6 grounded the 171 MAX 9s operated by the two carriers until inspections and repairs, if needed, are completed.
This photo of a Boeing 737-900ER for Turkish Airlines shows a door plug closed on the 737 final assembly line. The over-wing exits are open. Credit: Unknown.
Boeing CEO David Calhoun, while telling CNBC that he wasn’t pointing fingers, did precisely that. He said Spirit AeroSystems had a “quality escape,” adding that Boeing failed to catch it, so it also had a quality escape.
How could this happen? The NTSB probe will presumably figure this out. Spirit ships the 737-9 fuselages with the door plug installed. Conflicting reporting suggests that Spirit is supposed to install the door plugs in the final, secure condition; or these are shipped with the plugs in place but in a condition that Boeing would later secure. The NTSB will sort this out, too.
Regardless, Boeing should have inspected the door plugs and assured these are in final condition prior to delivery. The Seattle Times reported on Jan. 14 that contrary to other reports, Boeing doesn’t open or remove the door plug when the MAX 9 is in final assembly. A retired Boeing safety employee with assembly line experience says Spirit ships the door plugs in a temporary condition, expecting that Boeing may remove them during final assembly.
FAA boosts oversight of Boeing; undelivered MAX 9s have discrepancies
By the Leeham News Team
Jan. 12, 2024, © Leeham News: The Federal Aviation Administration today announced it is boosting its oversight of Boeing production and manufacturing on the 737-9 MAX.
The FAA’s been overseeing Boeing deliveries of the MAX since recertifying the airplane in November 2020. Following the discovery of production issues of the 787 in October 2020 that resulted in Boeing suspending delivery for more than a year, the FAA also assumed certification by an FAA official.
With today’s announcement, the FAA said it will add “new and significant actions to immediately increase oversight” to audit the MAX 9 production line and its suppliers to “evaluate Boeng’s compliance with its approved quality procedures.
The FAA also will increase monitoring of MAX 9 in-service events and assess the safety risks of delegated authority. The full announcement is below.
737 incidents prompt new scrutiny at Boeing
By the Leeham News Team
Analysis
Jan. 8, 2024, © Leeham News: Following in the footsteps of the 737 rudder bolt omission inspection just last month, we have the Jan. 5 incident on Alaska Airlines Flight 1282 in which an emergency exit plug door blew off the airplane at 16,500 ft. This may indicate another quality assurance failure at either Boeing or Spirit AeroSystems.
The door plug design used on the Boeing 737-900/900ER, 737-8-200 and 737-9. Credit: Boeing, via the National Transportation Safety Board.
We don’t know if this is a Boeing problem, a Spirit problem, a bolt manufacturer problem, or an Alaska Airlines problem. It’s way too soon in the investigation to draw conclusions. Certainly, because it’s Boeing’s name on the airplane, and especially given the MAX history, people are jumping to the conclusion that Boeing screwed up again. While this may ultimately prove true, LNA is not at all prepared to conclude today that this is the case.
Illustration of the bolt locations securing the Boeing 737-9 door plug to the airframe. Credit: Capt. Chris Brady.
The flight left Portland (OR) for Ontario (CA) about 4:30pm. Six minutes later, as the two-month-old Boeing 737 MAX 9 was climbing through 16,500 ft to cruising altitude, the inactive emergency exit plug door, aft of the wing on the left side of the plane, separated from the aircraft. Decompression followed, with an emergency descent and landing back at Portland. There were no serious injuries.
The area where the door plug and cell phones fell from Alaska Airlines Flight 1282. Credit: Google Earth, NTSB.
Boeing and Spirit have been plagued in recent years by quality “escapes.” Inspection and quality assurance may be the culprit again. The official investigation will take some time. The rapid issuance of the Emergency AD Note mandating only a one time inspection is a logical response to something having been misassembled, with the fix being to verify it is assembled per drawing. Whether this is another piece of poor workmanship not being caught by inspection remains to be seen.
The following analysis was compiled by LNA’s news team.
Spirit Focused on Delivering On Time and At Quality
By Dan Catchpole
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Nov. 6, 2023, © Leeham News: Spirit Aerosystems’ new CEO Pat Shanahan’s focus right now is “to restore confidence in the company” with its biggest customers—Airbus and Boeing.
During a Nov. 1st conference call discussing the company’s third quarter earnings, Shanahan said, “I recognize we have disappointed our stakeholders.”
Shanahan just came on as chief executive in October to help turn around Spirit, which has been flailing, along with much of the aerospace supply chain. Boeing and Airbus will be watching Shanahan’s progress. He gained a reputation as Mr. Fix-It during his time at Boeing.
Summary
- Market responds favorably to latest earnings report and management’s promises.
- Shanahan says Spirit is on track to deliver more than 50 737 MAX airframes in 2025.
- Goal is zero-quality issues.