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Boeing reports quarterly loss of $355 million amid safety scrutiny, CEO Calhoun admits firm in 'tough moment'

Troubled aviation giant Boeing announced a first-quarter loss of $343 million on Wednesday, reflecting recent safety challenges that have resulted in decreased production and deliveries.

Boeing reports quarterly loss of $343 million on lower plane deliveries amid safety concerns snt
First Published Apr 24, 2024, 5:43 PM IST

Boeing reported a $355 million loss for the first quarter of the year on Wednesday, stemming from a quality crisis triggered by a January 5 flight incident where a panel blew off one of its planes. Although the loss was not as severe as analysts had predicted, Boeing generated over $16.5 billion in revenue in the first quarter, slightly less than the same period last year but also surpassing analyst expectations. However, the company also burned through almost $4 billion in cash.

The panel blowout on a 737 Max 9 jet during an Alaska Airlines flight didn't result in major injuries but dealt a significant blow to the company, reigniting concerns about Boeing's practices, especially following two fatal crashes involving 737 Max 8 planes five years ago. Since the January 5 flight, Boeing has implemented measures to enhance quality, such as expanding inspections, altering work procedures, increasing training, and seeking more feedback from employees.

“We are absolutely committed to doing everything we can to make certain our regulators, customers, employees and the flying public are 100 percent confident in Boeing,” Dave Calhoun, Boeing’s chief executive, said in a letter to employees on Wednesday.

Last month, Calhoun announced his intention to step down by the year's end as part of a broader management overhaul. Boeing is also in discussions to acquire Spirit AeroSystems, a troubled supplier responsible for constructing the body of the Max jet, which was once a part of Boeing before being spun out two decades ago.

The Federal Aviation Administration has intensified its scrutiny of Boeing, capping 737 production at 38 planes per month, although actual production remains significantly lower. The regulator has mandated that Boeing develop a plan to enhance quality by the end of May.

Boeing had aimed to reach production levels of 50 737s and 10 larger 787s per month starting next year, but analysts doubt the company will achieve this target. The recent crisis led to a notable slowdown in deliveries in the first quarter, although the company secured a respectable 126 net new orders, largely due to a substantial order from American Airlines for dozens of 737 Max 10 planes, an aircraft that is yet to receive certification from the F.A.A. Boeing stated it currently holds an order backlog of 5,600 planes valued at $448 billion.

“Near term, yes, we are in a tough moment,” Calhoun said in the letter to employees. “Lower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else.”

Boeing's commercial plane division recorded an operating loss exceeding $1.1 billion, which was partially mitigated by a $151 million operating profit from its defense division and a $916 million gain from its services division, responsible for providing maintenance support to customers.

Following the January 5 flight incident, all Max 9 planes faced a temporary ban from flying, causing frustration for airlines like Alaska Airlines and United Airlines that heavily rely on these aircraft. Both carriers indicated last week that they would have reported quarterly profits if not for the grounding of the planes.

United Airlines stated it will receive an undisclosed amount of compensation from Boeing, which will be applied to future plane purchases.

Meanwhile, Alaska Airlines' CEO, Ben Minicucci, disclosed that Boeing had paid the airline $162 million. Minicucci characterized this payment as a testament to the strong relationship between the airline and Boeing.

“Alaska needs Boeing, our industry needs Boeing, and our country needs Boeing,” he said.

Boeing found itself under scrutiny during two intense Senate hearings this month. One session critiqued the company's safety culture, while another addressed concerns raised by a whistle-blower regarding the durability of the 787 Dreamliner, a popular twin-aisle jet used for long-haul flights. Boeing vigorously denied the whistle-blower's allegations, asserting that extensive testing and years of commercial flights have shown no signs of fatigue in the plane's body.

In February, an expert panel convened by the F.A.A. concluded a yearlong investigation, determining that Boeing's safety culture still has shortcomings despite improvements made after the fatal crashes in 2018 and 2019. The panel also noted progress in limiting interference by employees overseeing F.A.A. functions but highlighted lingering possibilities for retaliation.

Boeing has stated its commitment to addressing these findings seriously. The company temporarily halted operations at over a dozen sites to conduct quality discussions involving more than 70,000 employees, as detailed in a letter from Mr. Calhoun to employees. These discussions yielded over 30,000 recommendations for improvements. Additionally, Boeing has encouraged employees to raise concerns through its internal "Speak Up" portal, resulting in a significant increase in submissions.

To address criticism that the company overly prioritizes financial results, Boeing announced this month that it would adjust employees' pay to more closely align with quality measures. In the commercial planes division, operational performance will now constitute about 60 percent of the score used to determine annual incentives, up from 25 percent previously.

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