Boeing’s CEO Is Shrinking the Jet Maker to Stop Its Crisis From Spiraling- Wall Street Journal

A strike could end soon, but the company remains in a perilous financial position

Sharon TerlepOct. 20, 2024

The airline industry’s biggest names donned gowns and tuxedos and filed into a Manhattan ballroom Friday for a night of cocktails and fretting about the future of Boeing BA 4.63%.

After sponsoring six tables, Boeing scrapped plans to send its usual contingent to the annual Wings Club fundraising gala. The company gave away most of its gala tickets to customers.

The chief executives of Lufthansa and United Airlines were there. So was the chief executive of GE Aerospace, one of the world’s largest makers of commercial jet engines.

Boeing’s new CEO, Kelly Ortberg, wasn’t there. He was hammering out a labor deal to end a damaging strike. The tentative agreement reached Saturday between Boeing and leaders of its largest union would give machinists a 35% raise over four years.

Even if the deal is ratified on Wednesday and union members go back to work, the company remains in a perilous financial position. Industry insiders and analysts have begun to ponder something previously unthinkable: whether a breakup or bankruptcy is in Boeing’s future if it remains on its current trajectory.

Boeing is exploring asset sales that could bring in much-needed cash while shedding noncore or underperforming units, according to people familiar with the discussions. Days before the gala, the company’s board met at Boeing’s Arlington, Va., headquarters, where directors quizzed division heads and combed through reports on the state of each unit, mulling next steps for the beleaguered plane maker.

Boeing has spread itself too thin and must shrink, Ortberg wrote in a note to employees earlier this month. “We need to be clear-eyed about the work we face,” he wrote. “We also need to focus our resources on performing and innovating in the areas that are core to who we are.”

Ortberg has moved to raise at least $10 billion in cash and slash thousands of jobs to stem losses that have exacerbated Boeing’s manufacturing woes and damaged a complex supply chain.

Boeing has tried unsuccessfully to sell a rocket joint-venture it shares with Lockheed Martin, and remains saddled with U.S. government programs like a troubled military refueling tanker and Air Force One replacement jets. Last week, the company reached a deal to offload a small defense subsidiary that makes surveillance equipment for the U.S. military, people familiar with the deal said.

Ortberg took the helm of the company in August. He will make his first public comments as CEO on Wednesday, when the union is set to vote on the new contract and Boeing will detail its financial results for the period ended Sept. 30. The company has warned that it will book billions of dollars in charges and report a $6 billion quarterly loss.

Faulty planes, broken trust

Ortberg is tasked with revamping a manufacturing goliath that has shaken the public’s trust.

In January, a door plug blew out on an Alaska Airlines flight after workers at Boeing’s factory failed to replace critical bolts. In July, Boeing agreed to plead guilty to a criminal charge that it misled air-safety regulators before two deadly 737 MAX crashes in 2018 and 2019. And Boeing’s Starliner spacecraft now faces an uncertain future after technical issues left two astronauts stuck on the International Space Station.

Scott Kirby, CEO of United Airlines, said he was pleased Ortberg aimed to raise equity to stabilize Boeing’s finances, a move which Kirby said was a change from past leaders who employed buybacks and other mechanisms to boost the stock price. “The old Boeing would never have done that,” Kirby said Friday night on the sidelines of the Wings Club gala.

The machinists strike, which began on Sept. 13, has halted production of most of Boeing’s airplanes. Credit-rating firms have warned that the company needs to preserve cash and could be downgraded to junk levels. Boeing was burning through cash before the union walkout. Analysts estimate the strike is costing the jet maker at least $1 billion a month.

Ortberg has spent recent weeks traversing the country, meeting with airlines, suppliers, federal regulators and his own lieutenants.

“I’m confident he’s on top of things,” said John Plueger, president of airplane lessor Air LeaseCorp., who has spoken with Ortberg. “He has been listening globally to feedback good and bad” from customers, Plueger said.

Boeing reached a tentative deal this weekend to end a strike by its machinists union. Photo: Chet Strange for wsj

In recent financial-performance meetings, Boeing’s CEO has asked heads of the company’s units to lay out the value of those units to the company, according to people familiar with the discussions.

Ortberg, who moved to Seattle from Florida when he took over, is also pressing the company’s famously far-flung executives to follow suit and move closer to the units they run. Former CEO Dave Calhoun took heat for running Boeing largely from his homes in New Hampshire and South Carolina. Finance Chief Brian West lives in Connecticut.

“Restoring our company requires tough decisions, and we will have to make structural changes to ensure we can stay competitive and deliver for our customers over the long term,” Ortberg said in his note to employees.

Suppliers shrink, airlines wait

The trouble at Boeing is reverberating throughout the industry.

Legions of parts makers are saddled with idled workers and excess inventory. Boeing last month said it would cut back orders from suppliers for its 737, 767 and 777 jets. Fuselage maker Spirit AeroSystems on Friday said it would furlough 700 workers. A U.K.-based part maker, Senior, announced job cuts earlier this month, citing production problems at Boeing and its European rival, Airbus.

Other big suppliers are trying to avoid layoffs as long as possible because it could take a year to rehire and train new workers. This presents a risk for Boeing, which will need parts when its striking machinists go back to work and it restarts production.

Boeing has spread itself too thin and must shrink, its CEO wrote in a recent note to employees. Photo: Chet Strange for wsj

Airlines, already short on planes they need to meet travel demand, face longer delays both on existing models and new models they have been counting on. Boeing said last week it would further delay the launch of the 777X, already years behind schedule.

Lufthansa CEO Carsten Spohr, a three-decade industry veteran, expressed dismay at Boeing’s latest deferral of the plane, which the jet maker initially promised to deliver in 2021 and has now pushed back to 2026.

“And we need it,” Spohr said Wednesday at a press briefing in Brussels. “I’ve never seen anything like it in our industry.”

In a speech at the Wings Club gala Friday night, Spohr told the audience that Boeing’s survival was vital for the entire industry.

The crowd broke into loud applause.

Alison Sider and Benjamin Katz contributed to this article.

Write to Sharon Terlep at [email protected]