Boeing’s leadership change and labor difficulties
Kelly Ortberg, an experienced executive in the aerospace sector, has recently taken the helm as Boeing’s CEO amid critical challenges facing the company. Ortberg’s appointment arrives during a time when Boeing is enduring numerous difficulties that have greatly impacted its reputation. In a letter addressed to employees, Ortberg recognized the significant challenges ahead, stating, “While we certainly have considerable efforts to regain trust, I believe that collaboratively, we will restore the company to the industry leader we all aspire to.”
Among Ortberg’s urgent challenges is a strike involving 33,000 machinists that commenced on September 13. The International Association of Machinists and Aerospace Workers (IAM) decisively declined Boeing’s initial contract proposal, with 94.6% of voting members rejecting it. The contract proposed a 25% wage increase spread over four years, yet 96% of union members voted in favor of the strike, indicating profound discontent.
Analysts from Northcoast Research estimate that the strike may cost Boeing around $100 million in daily revenue, intensifying the pressure on the new CEO to resolve the conflict promptly.
Expert: Boeing CEO ‘faces a tight deadline’
Ashley Fulmer, an assistant professor of managerial science at Georgia State University, indicates that Ortberg has a narrow timeframe to assert himself as a catalyst for change. “As a newcomer not tied to previous challenges, the new Boeing leader has a brief opportunity to foster trust and fulfill expectations for a new direction, ensuring stakeholders view him as a change agent rather than merely another entity looking to uphold the existing system,” Fulmer remarked.
Fulmer also pointed out the emotional impact that past failures have inflicted on Boeing’s stakeholders, emphasizing that restoring trust will necessitate addressing the anger, fear, and anxiety born from earlier trust breaches. “The new CEO must respond to these sentiments and the sense of vulnerability experienced by the stakeholder groups affected by Boeing’s actions,” she added.
In response to the ongoing strike, Boeing submitted what it termed its “best and final contract offer” on September 23. The updated proposal suggests a 30% wage increase over four years, an increase from the earlier proposed 25%, and it has doubled the ratification bonus to $10,000. Furthermore, Boeing reinstated annual bonuses, which had previously been contentious in negotiations.
IAM International President Brian Bryant acknowledged the new proposal, indicating it is currently under evaluation. “Certain top priorities for the union include securing respect and equitable pay, recognizing the sacrifices made by these workers, alongside progress on retirement security and other significant matters,” Bryant noted. He further stated, “Employees were aware that Boeing executives could offer better, and this development proves that they were correct all along.”
Boeing cautions the strikers
Simultaneously, Boeing’s Chief Financial Officer Brian West delivered a serious warning to workers, asserting that the strike “threatens our recovery in a substantial manner.” In a memo, West detailed multiple cost-saving strategies the company has implemented to conserve cash throughout the strike, including furloughing employees, suspending first- and business-class travel for all staff, and requesting suppliers to halt deliveries of parts for specific aircraft. Additionally, Boeing has put on hold non-customer-related catering services at its offices.
Financial hardships and regulatory examination
Boeing’s financial difficulties have been intensified by a succession of regulatory and operational setbacks, subjecting the company to rigorous scrutiny. Even prior to the machinists’ strike, Boeing was contending with considerable financial hurdles. The company has been exhausting over $1 billion each month in cash, primarily due to production slowdowns aimed at remedying quality control problems. These lapses came to light after a near-disastrous event in January, when an Alaska Airlines flight was forced to make an emergency landing due to a door plug malfunction on a Boeing 737 Max 9 aircraft.
The Federal Aviation Administration (FAA) has since initiated an investigation into the incident, increasing the regulatory burden on Boeing. The company has been under close observation ever since the tragic crashes of its 737 Max jets in 2018 and 2019, which resulted in a 20-month grounding of the aircraft. The repercussions of these accidents have been substantial, both in terms of financial losses and damage to reputation. Recently, Boeing entered into a plea agreement with the U.S. Department of Justice, agreeing to plead guilty to a charge of criminal fraud conspiracy and to pay a fine of up to $275 million. This settlement is part of a broader effort to address legal claims from the families of crash victims.
Regulators remain vigilant. FAA Administrator Mike Whitaker has emphasized that Boeing will be held accountable for ensuring aircraft safety. In a statement to a U.S. House aviation subcommittee, Whitaker underscored the necessity for Boeing to revamp its quality control systems to avert future incidents. “Due to systemic production quality concerns, Boeing must implement significant changes to enhance its quality system and ensure the appropriate safety layers are established,” Whitaker stated. He also warned that the FAA would utilize its full authority to impose accountability, whether it pertains to Boeing, its suppliers, or even the FAA itself.
Compounding Boeing’s challenges, the company’s Defence, Space & Security division has been facing financial troubles. In July, the division reported a $523 million loss for the second quarter, a substantial increase from the $297 million loss reported in the same period last year. The unit’s annual loss for 2023 is anticipated to reach $1.8 billion, further impacting Boeing’s overall financial situation. The abrupt exit of Ted Colbert, the division’s president and CEO, has only heightened the uncertainty. Steve Parker, the unit’s chief operating officer, has taken on the leadership gap, but the search for a permanent successor is still in progress.
Analysts are revising their forecasts for Boeing in light of these challenges. Jefferies analyst Sheila Kahyaoglu recently decreased the firm’s price target for Boeing shares from $300 to $270, citing the unpredictability surrounding the machinists’ strike and continuing difficulties within the defense sector. Kahyaoglu’s base assumption is that the strike will persist for four weeks, with a resolution likely by early October. However, she cautioned that Boeing’s recovery might be slower than expected, especially considering the “persistent defense pressures that Boeing is struggling to overcome.”
