Boeing CEO’s Comeback Plan For 2024 Takes A Hit Five Days In

(Bloomberg) -- Wrongly drilled holes, loose rudder bolts, and now a fuselage section that ejected during flight on a brand-new aircraft, leaving terrified passengers exposed to a gaping hole in the cabin at 16,000 feet (4,900 meters). 

In just months, Boeing Co. has suffered a series of quality lapses that threaten to erode trust in the manufacturing prowess of the biggest US exporter — notably its 737 Max aircraft, a crucial cash cow. 

The latest, most serious, mishap occurred on the evening of Jan. 5, when a door-shaped panel ripped out as an Alaska Airlines 737 Max 9 climbed out of Portland, Oregon. Regulators reacted swiftly, grounding 171 of the variant less than 24 hours after the incident, including the entire fleet of 737 Max 9s in the US. And while nobody was seriously injured, authorities said luck played a big part in the event not turning tragic.

Shares of Boeing fell 7.9% in premarket US trading on Monday as investors assessed any impact on production and planemaker’s long-term outlook. Supplier Spirit AeroSystems Holdings Inc., which installed the panel on the nearly new jet, slid 16%. 

For Boeing Chief Executive Officer Dave Calhoun, the Alaska Air episode is another blow to his efforts to stabilize the company after half a decade of upheaval, coming just a few days into a new year he had heralded as crucial to a turnaround. Boeing is still feeling the reverberations of two deadly 737 Max crashes almost five years ago that shook confidence in the company. Now Boeing’s fraught relationship with Spirit, its biggest supplier, stands to face fresh scrutiny.

As the crisis in confidence deepened over the weekend, Calhoun canceled Boeing’s annual senior leadership retreat, which was to have begun Monday outside of San Diego. And he summoned employees to an all-hands meeting to be webcast from Boeing’s 737 factory on Tuesday, where he and other senior executives will address the near-tragedy and reinforce Boeing’s commitment to safety, quality, integrity and transparency.

While Boeing has made progress in recent years, “situations like this are a reminder that we must remain focused on continuing to improve every day,” Calhoun told employees in a company-wide message on Sunday.

The moves come as investigators work to piece together what went wrong with the Alaska Max 9, which had been in service for less than two months. The planemaker is also preparing a multi-operator message, outlining the inspections required before much of the Max 9 fleet will be allowed to resume flying.

“I would hope that they will quickly get to the bottom of this and see if it was truly a one-off,” said Richard Healing, a former National Transportation Safety Board board member, who now heads consulting firm Air Safety Engineering. “If it was just that airplane, there may have been poor workmanship done when they locked off that door. I would be looking at everything you can imagine.”

Cabin Layout

The NTSB, which arrived on the scene in Portland within hours, will examine Boeing’s manufacturing process for the 737 Max 9 as it investigates what may have led to the panel’s blowout. Of particular interest are components around the door opening, including hinges and stop fittings, as well as the pressurization, Jennifer Homendy, the safety agency’s chair, said at a press conference Saturday. 

Boeing’s former Wichita, Kansas-based subsidiary builds about 70% of the 737’s frameset, according to Spirit’s website. The green aluminum fuselages are shipped by railcar to Boeing’s Renton, Washington, factory, where wings, tails and interiors are installed. These include different cabin configurations depending on the seating density.

Read More: Blowout of 737 Max Sidewall Seen Pointing to Quality Lapse

In the stretched Max 9, customers can opt for additional emergency exits so that cabins can squeeze in more seats. Alaska Air and United Airlines Holdings Inc. opted to cover the door-shaped opening with a plug that’s indiscernible from the inside of the plane.

Investigators will likely look into how the doors are plugged and even question why they exist if they can come open, Healing said.

The hinged section is secured by four bolts and opens outward from the top, according to Chris Brady, a former head of the UK Flight Safety Committee. 

“Something must have been amiss with at least one of those bolts,” he said on a video posted to Youtube.

Spirit has struggled with quality issues, high worker turnover, labor strife and financial stress since the Covid pandemic and 2019 Max grounding. New CEO Pat Shanahan is shaking up operations and has struck a new pact with Boeing to put its top supplier on better footing. 

Troubled History

The Alaska Air scare prompted US regulators to order emergency inspections for about 171 of Boeing’s Max 9 models worldwide. While the disruption to air travel is likely to be short-lived — the inspections only take four to eight hours per jet — the repercussions will likely still be lingering when Calhoun outlines his road map for the year to investors during a Jan. 31 earnings call.

Read More: Boeing Max Grounding Goes Global as Carriers Follow FAA Order

“It’s not good for anybody, especially given this aircraft’s history,” said Richard Aboulafia, managing director at aviation consultant AeroDynamic Advisory. “In the background of this, there is bad need for cultural changes that put senior corporate management more closely in touch with the design and manufacture of aircraft.” 

Boeing said it supports the grounding and that it was in close touch with the regulator and with customers. A technical team from the US planemaker is supporting the probe. For his part, Calhoun, who has led Boeing since early 2020, had previously cautioned that the road to a brighter future would be bumpy. 

“When we set our recovery plans, we knew issues would come up along the way,” the CEO said in a memo to workers in late October. “This is a complex long-cycle business and enduring change takes time.”

It’s too soon to know what caused the door plug to fail during the Alaska Air flight, and whether Boeing or Spirit made critical missteps. Boeing has ultimate responsibility for ensuring an aircraft is airworthy. Every jet in final assembly undergoes pressure tests to find leaks and ensure doors are sealed. And in the aftermath of the Max tragedies, Federal Aviation Administration inspectors must sign off before the workhorse jets are handed off to customers.

Zero Defects

One of the consequences of the Alaska Air incident may be a slower increase to the 737 manufacturing pace than Boeing had planned for the year. The planemaker faces immense pressure to return its factories to 2019 rates at a time when customers are clamoring for the latest aircraft, and investors are expecting cash generation to surge.

Prior to the incident, analysts had predicted that Boeing would deliver about 580 of their 737-series jetliners this year, according to data compiled by Bloomberg. That’s a considerable jump from the 375 to 400 deliveries that the company targeted for 2023. A delivery surge would also propel Boeing to its first annual profit since Calhoun took over as CEO.

“There is a risk of having to slow down the ramp,” said Aboulafia. “The aftermath could well be time-consuming and a diversion of resources.”

As the latest Max crisis unfolded, Boeing’s commercial airplanes chief Stan Deal and Brad McMullen, senior vice president of sales, led teams of people reaching out to keep customers ahead of fast-moving developments. Hours before the FAA acted, United Airlines, the biggest operator of the Max 9 variant, had already begun pulling planes out of service at Boeing’s direction, starting with five Max 9 built in a similar time frame to the Alaska Air jet.

That’s in keeping with Calhoun’s philosophy of hands-off management, and pushing responsibility and resources to the company’s main business units. The Boeing CEO doesn’t stalk factory floors like his predecessor, Dennis Muilenburg, a Boeing lifer and engineer by training who was forced out over his handling of the Max grounding in the wake of the two accidents. 

Calhoun described 2024 as an “important transitional year” to employees when he introduced Stephanie Pope as the company’s chief operating officer last month. Guiding the embattled planemaker through it just became a lot tougher for Calhoun and Pope, the frontrunner to succeed him. A key question is how many more bruising headlines Boeing can endure before customers start to waver.

“If Boeing doesn’t get its factories stabilized, it’s going to be a problem selling airplanes — if it isn’t already,” said Bloomberg Intelligence analyst George Ferguson. “You’ve got to have zero defects all the time. That’s the business.”

--With assistance from Mary Schlangenstein and Danny Lee.

(Updates with premarket US trading in fourth paragraph)

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