Kelly Ortberg doesn’t have much time.
The aerospace industry veteran took over last month as chief executive of Boeing (BA) at a critical time in the planemaker’s history.
Related: Boeing delivers hard-nosed message to employees amid strike
The company has been contending with a slew of problems that have severely battered Boeing’s reputation.
“While we clearly have a lot of work to do in restoring trust, I’m confident that working together, we will return the company to be the industry leader we all expect,” Ortberg said in a letter to staff.
Ortberg latest challenge comes in the form of a strike by 33,000 machinists, who walked off the job on Sept. 13.
The International Association of Machinists and Aerospace Workers said 94.6% of voting workers rejected the contract, which would have raised pay 25% over four years. Some 96% approved the strike.
Analysts from Northcoast Research estimate that the strike can cost Boeing roughly $100 million in daily revenue.
Kelly Ortberg was chosen as the new Boeing CEO.
Getty/TheStreet
Expert: Boeing CEO ‘has a short window’
“As a newcomer not responsible for past issues, the new Boeing CEO has a short window to build trust and meet the expectations to set a new direction, so that stakeholders see him as an agent of change rather than another part of the organization seeking to maintain the status quo,” said Ashley Fulmer, assistant professor of managerial science at Georgia State University’s Robinson College of Business.
Fulmer said that rebuilding trust in Boeing is challenged by the emotional fallout from past failures “as people typically experience emotions such as anger, fear and anxiety after trust violations.”
Related: Analyst overhauls Boeing stock price target as cash issues persist
“The new CEO needs to respond to these emotions and the vulnerability felt by the stakeholder groups affected by Boeing’s actions,” she said.
On Sept. 23, Boeing made what it called its “best and final contract offer,” including raised pay and reinstated annual bonuses. It also increased a bonus that would be paid when the contract was ratified.
Boeing’s new offer would raise general wages by 30% over four years, up from a previously proposed 25%. It also doubled the ratification bonus to $6,000 and reinstated an annual bonus.
In a statement, IAM International President Brian Bryant said Boeing’s latest proposal is being reviewed. Some of the union’s top priorities remain ensuring “respect and fair pay, recognition of the sacrifices these workers have made, along with progress on retirement security and other key issues,” he wrote.
“Employees knew Boeing executives could do better, and this shows the workers were right all along,” Bryant said. “The proposal will be analyzed to see if it’s up to the task of helping workers gain adequate ground on prior sacrifices.”
Boeing warns the strikers
Boeing Chief Financial Officer Brian West warned employees in a memo that “the strike jeopardizes our recovery in a significant way and we must take necessary actions to preserve cash and safeguard our shared future.”
The company also started furloughing workers and taking other steps to preserve cash during the strike, such as eliminating all first- and business-class travel for workers, including executives, asking suppliers to halt shipments of parts for some planes and stopping all noncustomer-related catering services at its offices,
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Boeing had been facing significant financial challenges even prior to the strike.
The Federal Aviation Administration launched an investigation into a Jan. 5 incident where an Alaska Airlines flight was forced to make an emergency landing after a door plug blew off of the Boeing 737 Max 9 aircraft mid-flight.
Analyst: ‘Boeing needs to reset its expectations’
Boeing burned through more than $1 billion a month in cash in the first half of this year as it slowed output of commercial aircraft to address quality lapses that were exposed after the near catastrophe in January, according to Bloomberg.
Prior to that, a design flaw in its best-selling 737 Max resulted in fatal crashes in 2018 and 2019, followed by a 20-month grounding of the jet.
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Last month, the U.S. Department of Justice signed off on a plea deal struck between Boeing and the crash victims’ families. The agreement would see the company plead guilty to a criminal fraud conspiracy charge and pay a maximum fine of around $487 million.
The head of the FAA intends to tell Congress that the agency will hold Boeing accountable to ensure the planemaker is building safe airplanes and will revamp its own safety management program, Reuters reported.
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“As a result of systemic production quality issues, Boeing must make significant changes to transform its quality system and ensure the right layers of safety are in place,” FAA Administrator Mike Whitaker said in a statement to a U.S. House aviation subcommittee.
“I am prepared to use the full range of my authority to ensure accountability whether from a manufacturer, an air carrier, or the FAA’s own operations,” he added.
Separately, Boeing said last week that Ted Colbert, president and CEO of its Defense, Space & Security unit, was leaving the company effective immediately.
Steve Parker, the unit’s chief operating officer, will take over Colbert’s responsibilities until a successor is named.
In July, Boeing’s Defense, Space & Security unit reported a $913 million loss for the second quarter, up from a $527 million loss a year earlier, after posting a narrow profit in the first quarter. The division reported an annual loss of $1.8 billion for 2023.
Jefferies analyst Sheila Kahyaoglu lowered the investment firm’s price target on Boeing to $240 from $270 on Sept. 23, while maintaining a buy rating on the shares, according to The Fly.
The length of the IAM strike is “unpredictable,” but Kahyaoglu’s baseline assumes a four-week strike and an early October end. So the firm reset its expectations to account for a likely slower 737 ramp and “ongoing defense pressures that Boeing cannot shake,” the analyst said.
Related: Veteran fund manager sees world of pain coming for stocks
