Leeham News and Analysis
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Leeham News and Analysis
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Boeing’s Investment-Grade Rating; Not just for bondholders
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By Karl Sinclair
Nov. 11, 2024, © Leeham News: The Boeing Company (BA) has repeatedly reaffirmed its commitment to retaining an investment-grade rating in comments from management. Many have taken that stance as an attempt to avoid an increase in interest rates on the $57bn in debt Boeing carries on its balance sheet.
However, there is another reason that is broadly overlooked by the market, analysts, observers, and media. Maintaining Boeing’s investment grade rating is important to a good portion of its supply chain that requires Boeing’s financial help.
Buried in Boeing’s filing with the Securities and Exchange Commission is this relatively innocuous paragraph:
“At September 30, 2024, trade payables included $2.7bn payable to suppliers that elected to participate in supply chain financing programs compared with $2.9bn at December 31, 2023. In future quarters, our suppliers’ access to supply chain financing could be curtailed or more expensive if our credit ratings are further downgraded.”
Boeing uses the supply chain to finance operations. Accounts Payable as of September 30, 2024, totaled $12.267bn, while Accrued Liabilities – an expense incurred but not yet paid for, hit $22.628bn (up from $11.964bn and $22.331bn year-end 2023, respectively).
Ortberg taps Mulally, Conner about Boeing’s recovery
By Scott Hamilton
Nov. 8, 2024, © Leeham News: When Kelly Ortberg assumed the chief executive’s slot at the ailing Boeing Co., he knew the company well as an 
outsider.
Ortberg had been CEO of Rockwell Collins, a major supplier to Boeing. After Collins was acquired by United Technologies (now RTX Corp.), he still had the vantage point of supplying Boeing. But he was and is nevertheless an outsider. He’s faced with the herculean task of fixing an American icon that’s descended into the abyss.
Being an outsider has its advantages and disadvantages. He brings fresh eyes and fresh perspective. But Ortberg doesn’t know inside Boeing, its processes, its culture (at least not intimately), or many other important things to fix the company.
Kelly Ortberg. Credit: Boeing.
To help mitigate this, Ortberg has consulted two Boeing “lifers” for background and input: Alan Mulally and Ray Conner. Mulally is a legend at Boeing, revered by many to this day for his engineering prowess and leadership style. His last position was CEO of Boeing Commercial Airplanes. Conner began working for Boeing on the shop floor and worked his way up to become CEO of BCA.
Ortberg knew both men from his supplier days. However, seeking their advice contrasts sharply with his predecessor, who was also tasked with fixing Boeing (and failed). David Calhoun didn’t reach out to these “wise men.” Instead, sources told LNA during his tenure that Calhoun believed he didn’t need and certainly didn’t want outside advice from them.
Boeing’s 12-Step process to recovery – Part 2
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By Karl Sinclair
Nov. 7, 2024, © Leeham News: As employees from the International Association of Machinists and Aerospace Workers District 751 (IAM 751) begin to report back to work after ending their 53-day strike and accepting the fourth offer from the company, Kelly Ortberg, CEO of the Boeing Company (BA) can now shift his attention to other pressing needs.
LNA identified 12 key points that need to be addressed. We continue analyzing what needs to be addressed in the upcoming months and years to get Boeing back on track.
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Boeing’s 12-Step process to recovery
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By Karl Sinclair
Nov. 5, 2024, © Leeham News: When Kelly Ortberg became CEO of The Boeing Co. on Aug. 8, the company was mired in a multitude of crises. The most immediate was the open labor contract with its largest union, the International Association of Machinists and Aerospace Workers District 751 (IAM 751). The contract would expire 34 days after Ortberg took over from David Calhoun.
A strike was considered likely, and those thinking so were right. Based on a near-unanimous vote, members rejected the contract on Sept. 12 and walked off the job hours later.
Now, 53 days after the strike began, the union has approved a fourth contract offer. The first employees will begin returning to work tomorrow, and the remaining 33,000 union members must return by Nov. 12.
Boeing can now get back to the task of building aircraft.
Ortberg will now be at peace with the IAM’s touch labor for the next four years and can move on to tackling what needs to be fixed.
On the 3Q2024 earning call, Ortberg alluded to the work ahead. “First, we need a fundamental culture change in the company; second, we must stabilize the business; third, we need to improve our execution discipline on new platform commitments across the company; and fourth, while doing the first three, we must build a new future for Boeing.”
Boeing strike is over; IAM members approve new contract by 59% vote
Nov. 4, 2024, (c) Leeham News: Just in: the International Association of Machinists District 751 members approved a new four year contract with Boeing by a vote of 59% to 41%, ending a nearly two-month strike.
Coverage continues tomorrow.
Five years to produce 737s at 50/mo, consultancy predicts
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By Scott Hamilton
Oct. 31, 2024, © Leeham News: When Boeing held its first investors day since 2018 in November 2022, then-CEO David Calhoun projected that the production rate for the 737 would be 50/mo sometime next year, three years hence.
John Schmidt, Accenture. Credit: Accenture.
This rate was slightly below the 52/mo production on March 9, 2019. The next day, an Ethiopian Airlines 737 MAX 8 crashed on take-off from Addis Ababa. It was the second MAX crash in five months. The two disasters killed 346 people. China grounded more than 80 MAXes operated by its airlines the same day. Europe’s EASA regulator and Transport Canada followed shortly. The Federal Aviation Administration didn’t follow suit until March 13.
Twenty-one months later, the FAA recertified the MAX. Global regulators followed, with China’s CAAC being the last to do so.
In March 2019, Boeing planned on boosting production to 57 a month by the end of the year. Planning was underway to increase production to 63/mo and even into the 70s.
Calhoun’s guidance blew out the window when a door plug blew out of a 737-9 MAX at 16,000 ft on Jan. 5 this year. But for the grace of God, there were no fatalities and only minor injuries. Pilots made a safe emergency landing. The ensuing investigation revealed production and safety lapses. The FAA clamped down on Boeing, officially capping production at 38/mo for now. In reality, new production hovered around 20/mo before the assemblers, the IAM 751 union, went on strike on Sept. 13. There is no end in sight.
Boeing’s new production 737 line has been well below the target of 38/mo all year. Source: Bernstein Research, Oct. 29, 2024.
So, when will Boeing get to a rate of 50/mo? A consulting firm—which occasionally consults with Boeing—predicts it will be another five years. Around November 2029. It’s a stunning prediction.
Job one in Boeing’s employee reset: changing the culture
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By Scott Hamilton
Oct. 28, 2024, © Leeham News: With last week’s decisive rejection by Boeing’s largest union, the IAM 751, of the third contract offer from the company, the question remains: What now?
Obviously, Boeing and the union must return to the bargaining table. A fourth contract offer must be forthcoming. One reason the union members voted 64%-36% to reject the third offer: no pension plan was included, a do-or-die demand for many members.
Boeing must sweeten its contract offer to the IAM 751–a lot–to settle the strike. Credit: Leeham News.
Boeing won’t give in on this, officials say. So, what now?
John Schmidt. Credit: Accenture.
It’s clear Boeing must sweeten the terms contained in the third contract offer. The 35% pay hike still fell short of labor’s demand for a 40% hike. Boeing also sweetened the bonus and 401(k) retirement plan contributions, and other terms. It’s also pretty clear that Boeing needs to really, really sweeten the offer to persuade the do-or-diers to let go of the pension plan demand.
How much sweetening is needed is anybody’s guess. But eventually some agreement will be reached and passed.
Then the story becomes about recovery.
In an interview with Accenture, a consultancy the works closely with aerospace companies (including Boeing), is optimistic that Boeing’s new CEO can turn things around. John Schmidt, the head of its Global Aerospace and Defense department, explained in an interview last week after the contract vote.
It’s a game of chicken now, and Boeing has up to 55bn eggs
By Scott Hamilton
Oct. 23, 2024, © Leeham News: In the end, it wasn’t even close.
Sixty-four percent of the IAM 751 members voting tonight rejected last Saturday’s revised contract offer from The Boeing Co. The absence of restoring the Defined Benefit Pension plan that was given up in 2014 and inadequate increases in wages are cited as the key issues.
There was already a game of chicken underway between Boeing and the union. This time, Boeing was considered to hold the weaker hand.
But moves within the last two weeks to improve its liquidity position dramatically changed Boeing’s ability to withstand a long strike.
Boeing filed a registration statement on Oct. 15 for a “shelf offering” of equity or other securities for up to $25bn. On the same day, it added a second line of credit for $10bn to be drawn when needed. A previous $10bn LOC remains untapped. And it had $10bn in cash and securities on Sept. 30, the end of the third quarter.
Boeing has $55bn in liquidity to carry it through a long strike, if necessary—far more than the IAM has today.
Boeing is adamant that it will not restore the Defined Pension Plan. The 35% wage increase proposed in the now-rejected offer only catches members up to 2014 and not today’s wage requirements, said one observer.
Boeing confirms previously announced loss, charges for 3Q; CEO pledges fixes (Updated with Earnings Call) (Update 2)
Boeing CEO Kelly Ortberg. Credit: Boeing.
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.
- Previously announced multi-billion dollar loss and billions in charges.
- Today’s final financial reporting
- CEO’s prepared statement
- Financial presentation
At a crossroads
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.
Voting by the Numbers: How demographics weigh in Boeing contract vote Wednesday
By the Leeham News Team
Oct. 21, 2024, © Leeham News: The new contract proposal offered Saturday by Boeing to the IAM 751 membership will be voted this Wednesday.
While the offer is much better than the original Tentative Agreement voted down on September 12 and the “Best and Final Offer” Boeing floated a week later, approval by the membership is still in doubt.
Comments on social media weigh heavily against approval. These outlets are hardly scientific. But the sentiment can’t be dismissed.
The new offer doesn’t materially adjust the starting pay of about $21 per hour. Therefore, this issue remains, as LNA outlined on Oct. 14. Although Boeing’s contributions to the 401(k) plan were improved, young workers are more likely to want higher wages now than a pension fund decades in the future.
Legacy workers who saw the Defined Pension Plan taken away 10 years ago remain hostile to any contract that doesn’t restore it—something Boeing is adamant won’t happen.
With a major shift in demographics among the 33,000 members, opposition to the new offer may be stiff, and approval of this offer in doubt.
How do these numbers shape up?