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Boeing’s HQ move revives worries over commercial plane arm


Boeing’s decision to transplant its corporate headquarters from Chicago to Arlington, Virginia, should have signalled a new chapter in the industrial giant’s history. Instead, the move has drawn criticism for taking management further from the company’s spiritual home, the commercial aircraft factories of Seattle, and closer to its defence operations.

Unions and industry experts have expressed disquiet, with some warning that the aerospace group is heading in the wrong direction just as it seeks to emerge from the tragic 737 Max crash crisis and setbacks on civil and military programmes that have dented investor confidence.

“It’s being perceived as an abandonment of the commercial aviation part of the company,” said Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace, which represents more than 14,000 Boeing employees.

Workers heard “‘nobody’s going to come fix the problems — they’re focused on where they can get more money’”, he added. “The company seems to move from magic solution to magic solution.”

The location of Boeing’s headquarters is a sensitive subject. The group shifted its head office from Seattle to Chicago in 2001, four years after merging with McDonnell Douglas. Critics say executives became more focused on wooing Wall Street than engineering excellence. Boeing spent more than $40bn on share buybacks between 2013 and 2019.

Boeing said the move, to a site a mile from the Pentagon, would bring it closer to customers and stakeholders as well as engineering talent, as it seeks to attract new hires. The company’s defence business brings in more revenue than its commercial arm.

Four of the US’s five biggest aerospace and defence companies will now be based in the Washington DC suburbs as Boeing joins Lockheed Martin, Northrop Grumman and General Dynamics. The Federal Aviation Administration (FAA), a US regulator that has increased its scrutiny of the company, is also located in the capital.

The debate about the wisdom of the shift in headquarters has been overshadowed by poor first-quarter results, which highlighted the challenges facing the company. Boeing last month revealed $1.2bn in charges in the first three months of the year, including $660mn related to the production of two Air Force One jets, the US presidential aircraft.

On the civil side, the company announced a further delay to its wide-body 777X aircraft to 2025, projected to cost another $1.5bn. Boeing is also making slower-than-expected progress on clearing an order backlog of hundreds of 737 Max jets that built up during the aircraft’s global grounding after two crashes in 2018 and 2019. Meanwhile, customer deliveries of the wide-body 787 Dreamliner remain on hold following quality control issues.

The bad news has weighed on its shares. Down 40 per cent since January, Boeing is the sole Big Five defence company stock to have fallen this year amid renewed investor enthusiasm for the sector in the wake of Russia’s war in Ukraine.

The repeated delays have frustrated some of Boeing’s largest customers, many of which are seeking to expand jet fleets as passengers return to the skies following the loosening of coronavirus pandemic curbs.

Ryanair chief executive Michael O’Leary said on Monday that sweeping changes were needed to Boeing’s senior management, while in February American Airlines said it had been forced to rearrange its summer schedule “due to Boeing’s continued inability to deliver our 787-8 aircraft”.

To make matters worse, Boeing’s arch-rival Airbus has built up a commanding sales lead in the narrow-body segment of the market. The European plane maker recently announced plans to aggressively step up production of its popular A320 family of jets, including with a second assembly line in the US at its operations in Mobile, Alabama.

Boeing office building in Arlington, Virginia
Boeing’s offices in Arlington, VA, which will be its new base. The move means four of the five biggest US aerospace and defence groups will be located in the Washington DC suburbs © Win McNamee/Getty Images

“Clearly Boeing, especially on the commercial side, is experiencing great challenges,” said John Plueger, chief executive of Air Lease, one of the company’s biggest customers, which is still waiting on about a dozen 787 jets. “In our view, given the history that we’ve had with Boeing in the past year to two, we are hopeful that we can get at least one 787 by the end of this year. I hope I am wrong, I hope we get many more.”

The move to Virginia would “strengthen ties with defence and hopefully with regulators like the FAA, and that is fine”, Plueger added. “But in our view, there is nothing like eyeballs directly on the production line.”

Some of Boeing’s other customers have gone further, with Dómhnal Slattery, boss of the world’s second-largest lessor, Avolon, telling an industry conference this month that the company had “lost its way”. It needed to “fundamentally reimagine its strategic relevance in the marketplace”, he said, adding that this would require “fresh vision, maybe fresh leadership”. 

Chart showing breakdown of Boeing's main businesses, by profit/loss from operations and annual revenue

The public rebuke is rare in an industry where disagreements are usually kept behind closed doors. Two other executives contacted by the Financial Times privately echoed the view that Boeing would benefit from fresh leadership and questioned its execution on key programmes. Dave Calhoun, Boeing’s chief executive and a long-term board member, promised greater transparency and a return to the company’s engineering roots when he took over from Dennis Muilenburg in 2019.

Boeing’s relentless production issues were “just the absence of leadership at the top”, said Richard Aboulafia, an aerospace consultant at AeroDynamic Advisory. He added that he was “baffled by the lack of a plan” for the company.

A person familiar with Boeing’s thinking insisted that management change was not needed to restore confidence. Boeing declined to comment on the matter.

Despite some customers’ frustration, the company has supporters and continues to win orders, including recently from Germany’s Lufthansa. Southwest Airlines chief Bob Jordan this year called Boeing a “terrific partner”. 

But the group’s decision to move its headquarters has amplified concerns over production and engineering.

“If you look at the history over the last quarters — they have pretty much taken charges on every one of their major programmes, both in defence and commercial. What they do isn’t easy, building these machines, but they seem to be having more difficulties than their peers,” said Ron Epstein, analyst at Bank of America, adding that a lot of the issues had to do with “engineering”.

Air Force One, a Boeing 707 jet used by President Ronald Reagan during his adminstration, on display at the Ronald Reagan Presidential Library & Museum
A Boeing 707 version of the Air Force One jet used by President Ronald Reagan. Boeing this year revealed $660mn in charges relating to production of two of the US presidential planes. © George Rose/Getty Images

The company insists things have changed since the Max accidents. Calhoun last month defended the company’s culture on an investor call, saying: “I don’t attribute our certification issues and time lines to engineering shortfalls in any way.”

Boeing told the FT that it was taking “comprehensive actions to strengthen engineering excellence, enhance quality and drive stability and predictability through the business”. “We are a long-cycle business, and the transformative journey we’re on will be measured in years; not quarters or months,” it added.

Brian West, Boeing’s chief financial officer, said at a conference last week that the company was “on the verge of turning the corner”. 

Its key milestones, he added, were to deliver 787s, to deliver more 737 Maxes and to generate sustainable cash flow. “Those three things are the most important elements that we think about day in and day out. And I believe that as we move through the course of the year, we’re going to start knocking down these milestones,” said West.

Generating cash flow is critical if Boeing — which still has $45bn of net debt — is to have the resources to fund investments, in particular in new aircraft, as the industry faces pressure over its carbon emissions. Some analysts believe the company will need to raise equity sooner rather than later.

Other long-term watchers have suggested the company might have to demerge its commercial arm from its defence business to survive — an idea rejected by a person familiar with Boeing’s thinking, who said “absolutely not”. Boeing declined to comment on the suggestion.

The coming months will be crucial for the group to convince investors — and customers — it is meeting its milestones. “[We] have always been a huge supporter and buyer of aircraft from the Boeing company . . . It has to be a reliable partner. It has to be able to deliver the aircraft that we have on order,” said Air Lease’s Plueger.



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