With the US elections rapidly approaching, seasoned astronauts from Nasa, Butch Wilmore and Suni Williams, are preparing to send their votes prematurely through email from the International Space Station (ISS) located 400km over the Earth’s crust.
Since facing issues with their Boeing spacecraft when entering orbit in June, the duo have remained marooned on the ISS. They are set to stay there until next February, by which time the newly elected president will have officially assumed office.
Meanwhile, Boeing, once a shining beacon in American manufacturing, will ascertain whether their recently disclosed strategy can avert an upcoming “fallen angel” scenario. This financial term describes a company that was previously highly rated but has now plummeted to junk-bond status, inevitably inflating borrowing expenses. Boeing has long been threatened with this fate, particularly as its stock value has experienced a hefty 55% drop over the past six years amidst recurring crises.
Boeing’s looming downgrade to junk status by credible agencies like Moody’s and S&P Global Ratings prompted the newly appointed CEO, Kelly Ortberg, to announce last week the company’s intentions to amass roughly 25 billion dollars in funds. It’s anticipated that 10 billion will accrue from a stock sale in the forthcoming months.
As if their problems weren’t sufficient, a pricey machinist strike entered its sixth consecutive week on Friday, severely impacting the output of Boeing’s aircrafts and costing the firm close to 50 million dollars daily. The action could not have come at a more inconvenient time as production lag had already gripped the beleaguered manufacturer before the strike due to further scrutiny over fuselages (the primary aircraft body) provided by Spirit AeroSystems for the top-selling 737 Max. This arose after an Alaska Airlines plane experienced an unexpected door plug burst in January.
Before the pay strike – fuelled by demands for a generous 40 per cent raise – and pension issues, Boeing was producing an average of 24 planes each month, far short of its ambition to raise this to 38 by year end. The identification and subsequent repair of defective junction boxes also added to their mounting challenges.
Naturally, such issues pale in comparison to the repercussions of the 737 Max aerial disasters involving Ethiopian and Indonesian airlines in 2018 and 2019. These incidents claimed the lives of 346 people, causing the 737 Max to be globally grounded for almost two years. Both accidents were connected to a flight regulating system that Boeing later confessed to misleading authorities about. The firm’s financial fallout is predicted to exceed $20 billion, taking into account compensation for victims’ families, penalties, and attorney fees. The company also suffered added financial burdens due to order cancellations amounting to billions.
Boeing’s setbacks can predominantly be blamed on a business approach adopted by successive CEOs in recent years, which focused on subcontracting operations and prioritising profitability over engineering. This culture change can be traced back to its 1997 merger with aerospace firm McDonnell Douglas. This shift in focus was magnified by moving the company headquarters from Seattle to Chicago, approximately 3,400km east, and splitting Spirit AeroSystems into an independent enterprise in 2005.
In a bid to address safety issues and better the supply chain, Boeing agreed to buy back Spirit with a $4.7 billion share-based deal in July. This acquisition, however, isn’t due to be settled until mid-next year.
Being in a commercial duopoly with Airbus, Boeing isn’t likely to disappear. Despite Airbus leading the market with more orders and deliveries for five consecutive years, both companies face manufacturing hurdles due to supply chain issues and rising costs. Their defence sectors, ranging from military to spacecraft, are also fraught with challenges, with Boeing’s Starliner’s future looking particularly dicey, as its astronauts circumnavigate the earth 16 times daily on the ISS.
Analysts such as Ken Herbert from RBC Capital Markets believe that plans to attract more capital might boost the company’s shares (which have already increased by up to 5% this week) but they predict investors will remain on the sidelines until the company’s prospects become clearer.
Newly appointed Ortberg has received recognition for residing in Seattle and engaging with staff at all levels since taking up his position in August – even amidst strikes from his mechanics.
The quarterly figures of Boeing are due to be reported next Wednesday, although it’s dubious whether Ortberg, an engineer with a diverse career background, from Texas Instruments’ chipmaker to the helm of Collins Aerospace, could devise a comprehensive game plan by then due to the interference of ongoing strikes.
During his negotiations with the unions, Ortberg seems to be at a disadvantage as they are aware of the difficulties he might face with raising equity until the dispute is resolved.
Despite these hurdles, Ortberg has been recognized for his efforts to connect with employees of all strata since his appointment in August, which involved relocating himself to Seattle even amidst the machinist strike (the headquarters later moved to Arlington, Virginia, a couple of years back).
“His ability to establish relationships that reach down to the factory floor is absolutely vital. This we perceive as Ortberg’s principal challenge,” says Douglas Harned, a Bernstein analyst, earlier this week in a review. “No foreigner at Boeing has been able to genuinely bond at various levels within the company as of yet. This inability of his predecessors has indeed contributed to the current state of affairs at the company.”