A six year long unresolved crisis engulfs Boeing
- Patrick Trancu
- Jun 11, 2024
- 2 min read
On 29 October 2018, a Lion Air Boeing 737 MAX crashed into the Java Sea 13 minutes after takeoff, killing all 189 people on board. On 10 March 2019, an Ethiopian Airlines Boeing 737 MAX 8 aircraft crashed near the town of Bishoftu six minutes after takeoff, killing all 157 people. Both tragedies were later attributed to a little-known software system installed by the aircraft manufacturer to offset the aircraft design problems.
Back in 2019, who would have imagined that at some point down the road «Boeing, a manufacturing pioneer, linchpin of the US defence business and survivor of a century of turbulence in the aviation industry», would face «a once-unthinkable prospect: having its debt rating cut to junk»? (source Financial Times).
A six-year-long unresolved crisis has engulfed the manufacturer. It has led to the dismissal of two CEOs, profound Board and management changes, over 22 billion USD in direct crises-related costs and somewhere in the realm of 60 bln in indirect crises-related loss of revenue from commercial aircraft sales, billions in increased financing costs, regulatory and public scrutiny, furious clients, fall-out effects downstream on its entire supply chain and upstream on its customers, the discovery of quality problems on most production lines, and a reputation gone through the document shredder. Now the prospect of a potential "junk bond" status. According to the Financial Times, «Six years ago, before the first 737 Max crash Boeing was rated “A” or “A2”— four notches above junk—by all three rating agencies.»
Over the past few years, I have written several articles on this crisis which to this day remains unresolved. Its origins can be traced back to the loss of the company's engineering culture following the merger with McDonnell Douglas (MD), in 1997. But other compounding factors also played a role. The company's top management was either unable or incapable of understanding and managing the complexity of the crisis Boeing was facing while the Board of Directors proved deficient and absent.
As the FT writes, the only thing that has saved Boeing so far, and comforted investors in the company's bonds, is that the commercial aviation market is a duopoly with only two suppliers: Boeing and Airbus. And this does not leave a lot of choices for airlines. However, as The New York Times pointed out yesterday in an article, «Both manufacturers also face a distant but rising threat from China and growing pressure to cut planet-warming emissions».
In the context of this unresolved crisis, will Boeing's new CEO, expected to be appointed by the end of the year, be able to decide when to develop its next brand-new plane? And can Boeing afford other missteps?