Boeing Appoints New CEO to Tackle Crisis and Drive Recovery
On Wednesday, Boeing [BA.N] announced the appointment of Kelly Ortberg as its new CEO. Ortberg, an aerospace industry veteran, is tasked with steering the company out of its current legal and regulatory troubles after a challenging quarter marked by a $1 billion loss. His tenure begins on August 8.
A New Chapter Amidst Challenges
Ortberg faces the daunting challenge of rebuilding trust with regulators, the industry, and the public amid a quality crisis. Boeing’s financial chief has warned of continued cash burn. Earlier this year, an Alaska Airlines-operated Boeing MAX 9 jet experienced a mid-air cabin panel blowout, further damaging the company’s reputation and safety record.
In the second quarter, Boeing reported a loss of $1.4 billion on revenues of $16.9 billion, falling short of the $17.2 billion consensus among analysts. The company posted a loss of $2.90 per share, worse than the expected loss of $1.97 per share. CFO Brian West informed analysts that cash use in 2024 would exceed previous estimates, with a significant cash burn expected in the third quarter. The second-quarter free cash flow usage stood at $4.33 billion.
Strategic Leadership Changes
Despite these financial struggles, Boeing’s shares rose 2% to $190.60 following the CEO announcement. The company’s crisis has led to an executive reshuffle. CEO Dave Calhoun will step down by the end of the year, while board chair Larry Kellner will not seek re-election.
Calhoun assured analysts that Ortberg’s arrival would not result in a major leadership overhaul. Stephanie Pope, head of Boeing Commercial Airplanes, is considered a potential successor to Calhoun. Calhoun will serve as a special adviser to the board until March 2025.
Addressing Production and Regulatory Issues
Following the January incident, the US Federal Aviation Administration restricted Boeing from increasing the production of its 737 MAX jets above 38 units per month. Boeing has struggled with production levels, sometimes producing far below this threshold to address quality issues. Ortberg’s immediate task will be to boost production from about 25 units in June and July to 38 by year-end.
Industry Veteran Takes the Helm
Ortberg, 64, brings over 30 years of experience in aerospace and defence to Boeing. He previously led Rockwell Collins, overseeing its integration with United Technologies and RTX until his retirement in 2021. Boeing waived its mandatory retirement age of 65 for Ortberg, who will receive a long-term incentive award worth $17.5 million. His annual base salary will be $1.5 million, with an annual incentive award target of $3 million and a $1.25 million cash payment in December.
Ortberg plans to base himself in Seattle, close to Boeing’s 737 MAX and 777 factories. This decision was welcomed by Jon Holden, president of the union representing over 30,000 Boeing workers. Holden emphasised the need for the new CEO to secure the union’s support during this critical period.
Wall Street’s Reaction and Future Prospects
Analysts have responded positively to Ortberg’s appointment. RBC Capital Markets analyst Ken Herbert described Ortberg as a strong and safe choice, despite concerns about his age. Ortberg’s reputation at Rockwell Collins and United Technologies is solid, and his experience in integrating acquisitions will be tested again as Boeing works to integrate Spirit AeroSystems following a recent acquisition deal.
Ongoing Struggles in Defence and Space
In the second quarter, Boeing delivered 92 aircraft, a 32% decrease from the previous year. The company’s Defence, Space, and Security unit, one of its three main divisions, has faced significant financial strain. Fixed-price contracts have led to cost overruns, exacerbating the unit’s losses. Such contracts, while offering high margins, have made defence contractors vulnerable to inflationary pressures, impacting US corporate earnings in recent years.