The Boeing Company (BA), renowned for its innovation and dominance in the aerospace sector, has recently found itself in turbulent skies. In January 2024, the company faced severe criticism following an unfortunate incident involving a commercial Boeing 737 Max 9. During ascent, the door panel dislodged, resulting in a substantial opening on the side of the aircraft.
This unsettling event marked the start of a challenging year for BA in 2024 and brought renewed attention to the Boeing 737 Max planes, which have already been involved in two past crashes in 2018 and 2019, killing almost 346 people.
In addition, it also highlighted broader concerns about the quality control of BA’s planes, including how they are made, parts storage, and the rush to meet production deadlines.
According to an investigation by the Federal Aviation Administration (FAA), BA failed 33 out of 89 product audits related to its plane manufacturing, which is highly concerning. As a prominent commercial aircraft manufacturer, Boeing plays a crucial role in the aviation industry; however, its recent errors have raised significant concerns about the overall integrity of the industry.
As a result of this January mishap, which was followed by heightened scrutiny from the FAA, BA is experiencing a major production slowdown. The FAA has set a production limit of 38 jets per month for BA, but the actual output has often fallen well below this threshold, dipping to single digits by late March.
Conversely, Airbus SE (EADSF), BA’s major industry rival, maintains a comparably strong production pace for its A320neo-family jets, with an average of 46 flights per month in the first quarter of 2024. According to BA’s Chief Financial Officer, Brian West, the company is implementing various measures to tackle quality issues and boost confidence among stakeholders.
Despite BA's attempts to restore confidence in the company's prospects among its stakeholders, the recent news of BA’s CEO David Calhoun stepping down underscores the immense pressure BA is currently facing.
Furthermore, BA’s chairman, Larry Kellner, has opted not to stand for re-election as a board director. Instead, the board has chosen former Qualcomm CEO Steve Mollenkopf to take his place.
Meanwhile, Stan Deal, the CEO of BA Commercial Airplanes, is retiring, and Stephanie Pope, who has been serving as BA’s chief operating officer since January, will step into his role.
In a letter addressed to BA employees, Calhoun characterized the January Alaska Airlines incident as a critical juncture for BA. Highlighting his intentions to step down, Calhoun emphasized the global scrutiny the company is facing. The letter further assured stakeholders of the company's commitment to resolving the issues and guiding it toward recovery and stability.
Calhoun’s departure amid intense criticism from major airline CEOs further highlights the company's difficulties. For instance, some of BA’s key customers, including Michael O’Leary, the CEO of Ryanair, Europe's biggest airline, and Scott Kirby, the CEO of United Airlines, have expressed disappointment with BA’s quality issues and delivery delays.
CEO Scott Kirby of United Airlines referred to the Alaska Airlines incident as a tipping point in their plans to acquire the BA’s Max 10 this year as originally intended. Consequently, they are now exploring the option of purchasing aircraft from BA’s competitor, Airbus, to replace the Max 10s they had ordered.
Bottom Line
With its shares down roughly 23% over the past three months, there is no denying that BA is currently going through its worst-ever crisis. The company's future is uncertain as the company’s CEO steps down, and the successor remains undecided.
Meanwhile, BA's recent quarterly results exceeded analyst expectations. The airline company reported fourth-quarter revenue of $22.02 billion, surpassing the $19.98 billion revenue in the prior year quarter and the consensus estimate of $21.08 billion.
During the same quarter, the company reported a non-GAAP core loss per share of $0.47, an improvement from the loss per share of $1.75 in the prior-year quarter and lower than analysts' estimate of $0.79. However, its free cash flow dropped 5.8% from the year-ago value, reaching $2.95 billion.
The company has reaffirmed its financial targets for 2025 and 2026, which include reaching approximately $10 billion in free cash flow and achieving $100 billion in revenue by as early as next year.
Despite exceeding analyst expectations for the fourth quarter, BA’s forthcoming quarterly results could hinder the company’s financial goals due to production delays and major airline customers choosing to procure aircraft from Airbus.
Furthermore, the company’s decision to withhold 2024 guidance during the recent earnings highlights the uncertainty surrounding its commercial airplane deliveries for this year. This uncertainty, ongoing production challenges, leadership shakeup, and customer preference shifts cast a shadow over BA’s prospects.
To that end, investing in BA’s shares might not be wise now. Investors could monitor the company for further developments and wait for clarity on its future direction.
