The Boeing Co. (NYSE:BA, Financial) is ending 2024 on uncertain footing. The aerospace giant has faced years of challenges operational, financial, and reputational. These issues are many and varied, from the long shadow of the 737 MAX disasters of 2019 and persistent quality control issues, to ballooning costs and worrying margin compression.
Now, under the leadership of Kelly Ortberg, its newly minted CEO, Boeing is looking to 2025 as an opportunity to rebuild its operational foundations and restore investor confidence. The question remains whether this new era of leadership can deliver the stability and growth that shareholders have longed for so desperately.
Much will depend on the performance of Ortberg and his team. Investors may benefit from taking a careful look at his brief tenure to date.
New costs and margin cuts put pressure on profitabilityBoeing managed to remove one major obstacle from its path earlier this month when it inked a new labor agreement with its largest workers union, bringing an end to a strike that began on Sep. 13. On Nov. 4, union members voted to accept a new deal that will give Boeing workers a 38% pay increase over the next four years, ending the 53-day strike that had caused massive disruptions to the company's business operations, including major delays in aircraft production.
The pay hikes promised in the new labor agreement will increase Boeing's overall labor costs by an estimated $1.2 billion. While no one denies that these additional labor costs will weigh on Boeing's bottom line to some degree, a number of analysts are confident that the company will not have to sacrifice profitability. For example, aerospace analysst Dhierin Bechai argued in a Nov. 25 commentary that Boeing ought to be more than capable of absorbing the additional costs thanks to a range of cost-cutting and efficiency measures that new CEO Kelly Ortberg intends to implement in the coming year.
Boeing is a sprawling organization with plenty of room for rationalization and cost improvement. Much will rely on the ability of Boeing's management to deliver on these economies without compromising quality or capacity. Ortberg has already taken steps toward economizing. In September, he announced a host of sweeping cost reduction measures.
New leadership seek to rebuild trust after crisis of confidenceBoeing's senior leadership has been in flux ever since the December 2019 departure of long-serving CEO Dennis Muilenberg after that year's pair of catastrophic 737 MAX 8 crashes led to the aircraft's grounding by the Federal Aviation Administration, throwing the company into an unprecedented crisis. His replacement, Dave Calhoun, who took the reins in January 2020, promised sweeping changes to rebuild trust with customers, passengers, and the market, starting with a cultural overhaul and to rebuild trust. Unfortunately, Calhoun failed to deliver the meaningful change that the public demanded. Calhoun stepped down in March of this year in the wake of yet another faulty aircraft incident in two months prior. The head of Boeing's commercial aircraft business and the chair of the company's board of directors departed as well, leaving a major vacuum at the top.
In August, Boeing announced Kelly Ortberg as Boeing's new CEO. A seasoned executive, Ortberg came out of retirement in order to take the post. Immediately upon taking the top job, Ortberg sought to set a new tone. In his very first communication to employees, Ortberg pledged to "focus on true culture change, empowering employees to speak up when they see potential issues and bringing the right resources together to solve them."
Ortberg's corporate honeymoon did not last long. Mere weeks into the job, the new CEO was forced to deal with his first serious crisis. Ortberg had to navigate Boeing's first labor strike in 16 years. The dispute with Boeing's largest union led to a walkout by 33,000 factory workers. Negotiations were deadlocked initially, leading to weeks of expensive work stoppages. After its first two offers were rejected by workers, Ortberg opted to sweeten the deal to stop the financial bleeding. While this tactic ultimately succeeded in ending the labor dispute, the strike had cost Boeing and its suppliers close to $10 billion.
With the labor dispute now thankfully in the rearview mirror, Ortberg can now focus on the future of Boeing. Unfortunately, labor strife was just one of many challenges dragging on Boeing.
Shaky financial performance in 2024Boeing's third-quarter financial performance reflects the significant challenges impacting the company's fundamentals. Boeing reported revenues of $17.8 billion, a slight decrease from $18.1 billion in the same period last year. This decline can be attributed in large part to the disruptions from the union strike, as well as previously announced charges on its commercial and defense programs. Boeing reported a net loss of $6.2 billion in the third quarter. This translated to a GAAP loss per share of $9.97 and a core (non-GAAP) loss per share of $10.44, respectively.
Boeing also saw an operating cash outflow on $1.3 billion, with negative free cash flow to the tune of $2.0 billion. With a debt load in excess of $57 billion, there is good reason to question Boeing's capacity to manage its financial obligations given its recent heavy losses. However, Boeing's order book remains healthy, with a backlog of 5,400 commercial aircraft valued at $511 billion.
Boeing management has expressed confidence in its ability restore profitability. During his first earnings call as CEO, on Oct. 23, Ortberg struck a positive tone, promising to make Boeing an "iconic" company once more.
Uncertain outlook weights on expectations and sentiment2025 looks set to be a year of major tests for Boeing. Its challenges are considerable, from margin compression and slowdowns in new orders, to persistent quality issues and fragmented corporate culture.
For investors with a stake in Boeing, much will hang on Ortberg's leadership. He has competently handled one crisis. Whether he can demonstrate the same deft hand in dealing with Boeing's manifold financial and operational challenges remains to be seen.
I will be watching the story closely as it develops, with a close eye on Ortberg and his leadership team.