What is Wrong at Boeing?

What is Wrong at Boeing?

What is Wrong at Boeing?

September 14, 2023

I read two articles this week concerning Boeing. One dealt with the CEO’s private plane trips (400 in three years from his two homes) and the fact that he is hardly ever in their Corporate Office in Arlington, Va. Also, the fact that their CFO is in Connecticut, at a newly created office 10 miles from his home, along with the Treasurer, is also problematic.

The second article dealt with Boeing’s continuing quality issues with the 737Max and their 787 Dreamliner aircraft. Most of these quality issues have occurred at Spirit AeroSystems, a major sub-contractor to Boeing.

I have some aircraft background, having been at Fairchild-Hiller in the 1960’s as Controller and then Director of Finance of the Aircraft Division. Later I was in executive positions with General Dynamics and Kaman Aerospace. Even though I was in finance, I interacted daily with engineering, production and quality. I had to understand the operation in order to do my job.

I looked at the leadership team’s bios at Boeing and those at Spirit AeroSystems. I also looked at the financials of Boeing and Spirit. I don’t see much in the way of operational experience.

Spirit is a spin- off of what had at one time been the Wichita, Kansas, Commercial Division of Boeing. It was sold in 2005 to an investment firm, Onex Corporation, and in 2006 Onex took Spirit public in an IPO. Today, most of Spirit’s stock is held by institutional investors.

How can the leadership of a major corporation continue to work remotely? How can you develop chemistry with your associates? How does the company develop a corporate culture when you aren’t in the same place? None of the other major aerospace corporations operate this way and they don’t have the issues that Boeing has. I believe that the remote work culture at Boeing has had a major detrimental impact on their operation. Moving the corporate office to Chicago and now to Arlington hasn’t been helpful either.

There is no reason that the most recent quality issue of improperly drilled holes in the aft pressure bulkhead of the 737 Max should have occurred. In the 1960’s, Boeing stationed their own quality inspectors at the site of their sub-contractors to ensure that the sub-contractor was manufacturing parts in accordance with Boeing’s engineering specifications and drawings. I don’t know if that is still the case but it should be.

At Fairchild-Hiller, we were producing flaps, spoilers and ailerons for Boeing’s 720, 727 and 747 aircraft programs. We were also a major sub-contractor on their Super Sonic Transport (SST). Boeing’s quality personnel were full-time, on site and an integral part of our manufacturing program. As a result, we never experienced issues concerning quality.

Apparently this current defect is complicated to fix and affects over 165 of the 220 of the 737 Max’s that are currently parked and in inventory. This will be an expensive fix.

Over the past three to four years, Boeing has continued to experience major quality defects on both their 737 Max and 787 Dreamliner aircraft. It is obvious that they have not made any progress in solving their quality issues. This has led to serious financial consequences for Boeing. For the past four years (2019-2022), income from continuing operations has totaled almost $26 billion in losses.

It has been reported that Boeing currently has approximately 85 Dreamliner aircraft parked and awaiting repairs before they can be delivered. This has obviously affected Boeing’s profitability as well as Spirit’s.

Spirit’s annual revenues for the year ending December 31, 2022 amounted to $5.391 billion. Net income from continuing operations was a loss of $858 million. For the past 4 years Spirit’s net income from continuing operations was a cumulative loss of over $2.813 billion on cumulative revenue of $17.8 billion. The negative cash flow, for 2019-2022, has amounted to over $2 billion.

Spirit’s cash position has shrunk from $2.35 billion at the end of 2019 to $658 million at the end of 2022. It apparently has shrunk even more since Boeing had to advance Spirit $150 million recently.

It is believed that over 80% of Spirit’s revenues is representative of Boeing Programs. Obviously, this performance is not sustainable and puts the viability of Spirit in jeopardy as well as that of the 737 MAX and 787 Dreamliner programs.

Spirit has recently said that they are attempting to renegotiate the terms of their contracts with Boeing.

Most of the leadership of both Boeing and Spirit have come from the financial world, with little or no manufacturing experience.

Where is Boeing’s Board of Directors in this fiasco? What has happened to the culture at Boeing? Obviously, whatever the leadership is doing, it isn’t working. The current Board Members have to assume some responsibility for this unsatisfactory management team and develop a concrete plan for change.

The investors should require this!

Jess Sweely

Madison, Va.

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