However, it faces a slow ramp up of production for the MAX aircraft in 2025.
Prior to the strike, Boeing was at a 25 per month rate.
In 2018, Boeing was producing the MAX aircraft at 52 per month.
It’s recipe for recovery now is to sustainably maintain a rate 40% below that peak without quality or safety issues.
If it can achieve that in 2025, it earns the right to begin the other tasks critical to its longer term success and survival.
In the upcoming year, Boeing will need to demonstrate to its suppliers, investors, customers, regulators, and rivals that it is genuinely on the road to recovery. Due to labor unrest, regulatory oversight, and production halts, Boeing has struggled to maintain stability since the first MAX operated by Lion Air crashed in 2018, killing all 189 occupants. As the industry leader at one point, its problems spread throughout the supply chain and into the airline sector, which was in dire need of new planes to keep up with the increased demand for travel after the pandemic.
It seemed like Boeing was getting back into the air 12 months ago. Then, on January 5th of this year, an Alaska Airlines MAX 9’s door plug blew out, resulting in an uncontrollable decompression and barely preventing another deadly mishap. In the ensuing months, amid FAA-imposed production caps, the head of the commercial aircraft unit was fired, the current CEO resigned and a new CEO was hired, a month-long strike occurred, and 1,700 employees were forced to lay off their jobs.
Before the second MAX crash in March 2019, when it was discovered that the aircraft had a systemic design flaw, Boeing’s stock reached an all-time high of $430. This year’s 52-week low was $137.03, a 68 percent decline. In expectation of more advancements, the stock has rebounded to $180 at year’s end since Kelly Ortberg became the new CEO.
Boeing has signaled its intention to sell off a number of non-core service units (see Forbes . com December 18 “Back to the Future” – The Great MandA Journey for Boeing) in order to further improve cash flow and lower debt, which helped to calm the financial markets. The MAX aircraft’s production will, however, ramp up gradually starting in 2025.
A month after the IAM strike was resolved, on December 10, Boeing reopened the MAX line. To its credit, it made the most of the delay by strengthening safety and quality procedures to guarantee a seamless production restart. To rebuild trust with the FAA and other regulatory bodies and give the supply chain demand signals that they can synchronize with, it is critical to maintain steady and consistent production free from safety concerns.
Given the current chaos in the supply chain due to start-stop dynamics and ongoing problems with component suppliers that impede the development of higher level systems, this will be a challenging task. The CFM LEAP 1-B engine, the MAX’s only propulsion system, is built by engine suppliers like SAFRAN and General Electric, especially.
The FAA had limited the MAX’s monthly production to 38 following the Alaska incident. Boeing was paid $25 a month before the strike. From a lower starting point of 18 per month, production is predicted to increase steadily throughout the year to an average of nearly 30 per month in 2025.
For the program to become cash positive, this rate must be maintained. With 4,600 orders backlogged and an industry begging for lift, the long-term solution to solvency is to continuously hit a cash-producing delivery quantity.
Additionally, the demand for new aircraft keeps the MAX selling well. Pegasus, a Turkish low-cost airline, ordered up to 200 737 MAX10s earlier this month.
As a result of layoffs or better opportunities in other areas of aerospace, like space or electric air vehicles, Boeing is also having to deal with the loss of senior engineering talent that is essential to the development of a new aircraft. There have been months of rumors that Embraer is thinking of building a new aircraft to cater to the “middle market,” which is larger than the MAX’s current seat capacity. Because airlines prefer Airbus’s largest A321 to cater to this expanding market, Airbus has risen to the top of the market share rankings.
Given Embraer’s skill and caution, a Boeing that is demonstrating its ability to bounce back both financially and operationally may be able to avoid competition for its market share. Airbus purchased the program for pennies after years of stagnant sales, forcing Bombardier to leave the commercial transport aircraft industry. Bombardier learned the hard way that competing with the two titans with a very good airplane (the C-Series) ended in failure.
Boeing was manufacturing 52 MAX aircraft per month in 2018. The current recovery plan calls for maintaining a rate 40% below that peak in a sustainable manner without compromising quality or safety. The achievement of that goal in 2025 grants it the right to start the other tasks necessary for its long-term survival and success.
These consist of:.
The first is establishing a culture and future vision that will draw in new talent and serve as the foundation for the introduction of a new aircraft, something it hasn’t done in 20 years since the 787.
2. Implementing a more thorough simplification of its management ranks and procedures than is required by a top-down mandate of 10 percent. Without alterations to the underlying work, these belt tightenings never last.
3. To reverse its market share decline, the airline must continue to win over the trust of its customers and the supply base.
Dear Mr. Ortberg, who arrived in August, has made the necessary initial moves, but the upcoming year will be crucial for demonstrating Boeing’s ability to continue on its upward trajectory. More organizational change and senior management departures are to be expected. However, we all hope he has a successful and important New Year.
