Leeham News and Analysis
There's more to real news than a news release.
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?
3Q Earnings reports kick off this week
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By Scott Hamilton
Oct. 21, 2024, © Leeham News: Third quarter earnings reports kick off this week. The most anticipated call will be The Boeing Co.
Boeing previewed a big loss for the quarter on Oct. 11. On Oct. 15, it filed a registration statement with the US Securities and Exchange Commission (SEC) for $25bn in equities, debt, and other securities—money that’s badly needed as it bleeds cash. It also filed another SEC document for a “supplemental” $10bn line of credit. This is in addition to a previous $10bn credit agreement.
Coupled with the $10bn in cash, Boeing potentially has up to $55bn in liquidity.
With the quarter’s loss already pre-announced and the new $25bn liquidity plan filed with the SEC, much of the suspense for Boeing’s earnings call is over. Also on Wednesday, the company’s largest union, the IAM 751 workers, vote on a new contract offer to end a strike closing in on its sixth week. Further color about CEO Kelly Ortberg’s “reset” plan for the company will be closely watched.
Boeing’s earnings call is Wednesday at 10:30 am EDT. The press release will be issued before the stock market opens. The union vote will be announced Wednesday evening.
In addition to Boeing’s earnings call this week, RTX (parent of ailing Pratt & Whitney) and GE Aerospace announce their earnings on Tuesday at 8:30 am EDT and 7:30 am EDT, respectively.
RTX results continue to be dragged down by PW’s continuing technical challenges with the Gear Turbo Fan engines that power the Airbus A220, A320neo and Embraer E-Jet. GE faces a drag on late deliveries and time-on-wing issues with its LEAP engines that power the Boeing 737 MAX and A320neo. GE is also affected by all the production turmoil and IAM strike at Boeing.
Germany’s MTU Aerospace reports on Thursday as well. MTU is a supplier to PW and GE. Safran reports on Friday.
Boeing, IAM reach contract agreement; vote on Wednesday
Oct. 19, 2024, © Leeham News: Boeing and its striking union, the IAM 751, announced a new agreement this morning on an improved contract offer.
The IAM summarized the new offer here. The highlights:
Boeing: Breaking Up is Hard to Do
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By Karl Sinclair
Oct. 14, 2024, © Leeham News: As newly minted CEO Kelly Ortberg struggles to deal with striking workers from the International Aerospace Machinists (IAM) union in the Seattle and Portland (OR) areas, calls continued for the Boeing Company (BA) to shed one or more of the divisions that make up the corporate entity.
Some point to the turnaround at General Electric, which has now become the standalone GE Aerospace (GE), after a series of divestitures and consolidations into three business units, with two being sold, as a model that Boeing should follow.
While the prospect seems to be rather straightforward, it is far more complex and intertwined than simply throwing up a for sale sign on the front door of an underperforming or unwanted business segment. It might be better to ride out the current storm as a whole and focus efforts on fixing what ails the patient, rather than cutting off a limb.
Where and who will be laid off in Boeing reset?
By Scott Hamilton
Oct. 14, 2024, © Leeham News: As Boeing prepares to lay off about 10% of its workforce of 170,000 employees, the key question remains unanswered:
Who and where will the layoffs come from?
Boeing didn’t say in its Friday announcement, other than in broad terms: “These reductions will include executives, managers, and employees,” CEO Kelly Ortberg said in a message to employees.
“Executives” in the Boeing organization include down to the Director level in management—not just the C or officer level. Union and non-union employees are at risk.
But there was no information about which divisions will be subject to layoffs, or how many in each.
Boeing Commercial Airplanes has the most employees of the three divisions of the company. But the “Enterprise” by far employs more than BCA or the other two units. Figure 1 has the breakdown.
Pontifications: Boeing needs massive reset, and not just with labor
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Now open to all readers.
- CEO Kelly Ortberg’s “reset” plan is long overdue. But Boeing needs to do better for the IAM members, and the members need to give up on the defined pension plan.
By Scott Hamilton
Oct. 14, 2024, © Leeham News: The Friday afternoon announcements by Boeing CEO Kelly Ortberg of a 10% employee reduction, termination of the 767 commercial airliner in 2027, and recognition that commercial and defense programs need drastic surgery is long overdue.
When Ortberg became CEO on Aug. 8, he said one of his top priorities was to “reset” relationships with labor. So far, this hasn’t worked out. But it’s the entire company that needs a reset. And this has been a long, long time coming. I’ll detail this below. But first, let’s talk about the contract talks between the company and the largest union, the IAM 751.
Members, 33,000 of them, walked out on Sept. 13 at 12:01 am. Production of all commercial airliners except the 787 ceased. Production of the commercially-based P-8 and KC-46A also came to a halt, as have all deliveries from Washington State.
Negotiations broke off entirely last week and Boeing withdrew its Best and Final Offer (BAFO). Both sides blamed the other, and competing Unfair Labor Practices complaints have been filed with the National Labor Relations Board. (NLRB).
One of the key areas of dispute: the size of the wage increase. But other factors, such as health care, go into total compensation. Boeing’s total compensation not only lagged others in aerospace, it’s had negative growth since 2018.
