Boeing’s Bad News for Investors Never Stops

But that’s not all. Boeing also officially delayed the commercial rollout of its jumbo 777X jet until 2025, a reflection of the additional hoops it needs to jump through to get new aircraft certified by cautious regulators in the wake of the 737 Max crisis. The company will pause production on the passenger version of the new 777X planes through 2023 to avoid building yet more inventory that it has nowhere to ship. This will result in $1.5 billion of abnormal costs beginning in the second quarter and continuing until manufacturing resumes. Boeing also took a combined $1 billion in charges in its defense unit to reflect higher costs and delays in the development of next-generation Air Force One jets and supply chain constraints and inflation in the T-7A Red Hawk trainer program. It’s the latest evidence that the company’s strategy of bidding low for fixed-cost defense programs on the expectation that future service work and its commercial business would provide enough of a cash-flow and profit cushion was ill-advised. 

Cowen & Co. analyst Cai Von Rumohr called it a “deck-clearing” quarter. Boeing is certainly not alone among industrial companies in reporting noisy results for the start of 2022 as inflation bites, supply chain constraints linger and Russia’s invasion of Ukraine and China’s Covid lockdowns create fresh challenges. But the problem is Boeing has cleared the deck in quite a few quarters in recent years, and it’s still far from certain that this is the last of the muck. Aerospace should be a bright spot in the industrial economy right now: Business and international travel demand are starting to catch up with the robust leisure recovery, fueling greater demand for new jets than manufacturers can supply. It’s hard for Boeing to take advantage of that encouraging backdrop, though, when it’s still spending so much time dealing with the consequences of its past poor decisions.

Read more:  Biggest Obstacle to Boeing Reboot is Boeing

“Do you have to restructure the engineering organization? I mean, really what’s going on there? I struggle to think of a program that you guys haven’t taken a charge on,” Bank of America Corp. analyst Ron Epstein said on Boeing’s earnings call. “It just seems like it’s just been more troublesome for Boeing than some of your peers.” Boeing Chief Executive Officer Dave Calhoun defended the company’s efforts to enhance safety-management protocols in its engineering ranks and improve accountability and pushed back on the idea that the current challenges reflect engineering shortfalls. He acknowledged, though, that he would have made different choices with regard to the money-losing defense programs. The regulatory certification process is also simply “different” in the wake of the Max crisis, he said. “It’s changed. It’s got to be thorough and it’s got to be good.” Indeed, Boeing isn’t going to get anywhere by trying to hurry the FAA at this point, but that doesn’t make its continued difficulty in delivering planes to customers and launching new programs any less frustrating for shareholders.  

There’s no obvious singular misstep or individual to blame for all of Boeing’s woes, despite the efforts of the Justice Department to pin the Max crisis on the company’s former chief technical pilot. A federal jury in Texas last month acquitted Mark Forkner of charges that he deceived FAA officials in their evaluation of the Max and development of pilot-training requirements. Former CEO Dennis Muilenburg certainly shoulders a fair share of responsibility, but so too does the board that approved the choices that led to this cascade of headaches. Current CEO Calhoun sat on that board for a decade before he moved into the top operational job. It would be a stretch to call his tenure a resounding success, but it’s equally hard to pinpoint any specific thing he should have done differently after inheriting such a mess.

The deferred prosecution agreement that Boeing entered into with the Justice Department in connection with the 737 Max crisis concluded that “misconduct was neither pervasive across the organization, nor undertaken by a large number of employees, nor facilitated by senior management.” Boeing’s prolonged and extensive challenges suggest that the reality is quite the opposite. 

There’s no easy way out for Boeing, but investors always have the choice to invest elsewhere in the aerospace sector. Many appear to be doing just that. Boeing shares slumped as much as 13% on Wednesday’s earnings update. 

More From Writers at Bloomberg Opinion:

• Aerospace Supply Troubles Are Far From Over: Brooke Sutherland

• Aircraft Retirement Party Has Been Postponed: Brooke Sutherland

• Boeing’s 737 Max Scandal Is Becoming a Success: David Fickling

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

More stories like this are available on bloomberg.com/opinion