Boeing is stuck 'digging' itself out of the hole it created

Boeing (BA) is under fire as the Justice Department seeks to charge the company for violating the terms of a 2021 agreement regarding two 737 Max crashes. Barron's associate editor Al Root recently made a trip to a Boeing manufacturing plant and tells Josh Lipton and Seana Smith about the experience and analyzes the company's outlook.

"There's more than 2 million parts in a 737, so it would be foolish to say that, 'Oh, I went to the plant and now I know the quality's improved,' but they spent a lot of time trying to carefully detail 'these are the kinds of changes we've made so something like that can never happen again,'" Root explains. He notes that Boeing doesn't have a lot of leeway to come back from the situation, saying, "They have to be perfect from this point forward... that's all part of the process of digging themselves out of this hole they built."

As CEO Dave Calhoun plans to step down by the end of the year, Root ponders different successors — both internal and external candidates. "Should they have no ties to Boeing? Should they have a lot of ties to Boeing? Because it's a complex organization where you need a lot of credibility internally. There is just no good answer."

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This post was written by Melanie Riehl

Video transcript

Another company, you know, very well.

That's Boeing.

You just made a visit al uh to a Boeing manufacturing plant, walk us through it.

What did you learn?

So Boeing uh usually does investor events, right?

Uh or media events and they bring everybody out there.

We were in the rent and facility of build 737 max.

So obviously, that's a very big deal this year.

Meg The door boy blew out on Jan.

Uh The stock was about $249 a share.

Then you see it on the, on the graphic there.

It's below 186.

Most of that's related to 737 quality issues.

So they spent basically time trying to explain how quality was improving now.

Uh uh a plane facility.

Um It is sort of an awesome site, right?

It's huge, it's clean.

Um There's a lot of people doing a lot of things.

There's more than 2 million parts.

Uh if you add up all the rivets and everything, there's more than 2 million parts of 737.

Um So it would be foolish to say that, you know, like, oh, I went to the plant and now I know the quality has improved, but they spent a lot of time trying to carefully detail, these are the kinds of changes we've made.

Uh, so something like that can never happen again.

And so, you know, we can ramp production and put this in the rearview mirror.

Um, you know, time will heal all wounds.

In the case of Boeing.

They don't really have a lot of leeway, they have to be perfect from this point forward.

Um And I left the plan saying, ok, at least, you know, there are things being done in terms of training, uh measuring employee efficiency, slowing the work down.

They've delivered a lot fewer 7, 37 minutes taxes that even the customers would like.

But that's all part of the process of digging themselves out of this hole.

They built a curious, what was the feeling like from employees?

There are those associated with Boeing and then when you talk about how obviously it's going to take time here for manufacturing to improve any sense of just more.

So what exactly that timeline looks like.

Um So it's a years long process, years long, right?

So, you know, if, if, you know, we're talking about the Tesla, you know, deliver 444,000 cars, uh, you know, Boeing and Airbus combined will deliver like 1100 planes this year.

It is a it, you know, they take, uh, there's a lot fewer of them there are a lot more money.

Uh, they're huge.

Um So, you know, where Tesla, you know, looking to turn things around in a quarter or to, you know, uh Boeing in terms of production quality should be looking to turn it around in a year or two and, and people might want to see that process, um, sped up, but that's just sort of the reality of plane manufacturing.

Um, so it, it'll take a while and, you know, the things that uh uh investors can look for is, you know, they're basically delivering 20 a month, they're allowed to deliver 38 the month, you know, so getting back to 38 and then having the FAA say, you know what, you can make 50 a month, which is their long term goal or one of their long term goals, I mean, and that, and, and then also seeing some of these other derivatives of the 737 max approved like the 737 max seven or the longer version called the, the dash 10.

These things will come out, you know, between now and 2026 and then people will basically say, oh, ok, things are getting better at Boeing um from an employee perspective, you know, each individual employee very proud of their work, you know, can talk about all of their training.

Most interestingly, you know, through COVID, you know, and some of the suppliers Boeing couldn't really quantify or didn't want to quantify it, you know, 20% turnover at some of these places.

So there is a huge, you know, curve that some of these people have to go up to get proficient.

And I think that really caught Boeing short over the last couple of years as they run into some of these problems, you know, al if we're talking Boeing, we also got to talk about who's gonna lead this company Calhoun.

Uh stepping down.

There's been that chatter al about Spirit Arrows systems.

Uh Pat Shanahan, what do you make of that?

Ok.

So we looked at this a little while ago and you know, the names that always came up were patchy and hand from Spirit.

Larry called from General Electric.

Uh Stephanie Pope, who is the coo who's the internal candidate.

Maybe somebody wild like Gwen Shotwell from spacex.

Uh Larry is firmly ensconced at Ge uh Pat is a legitimate candidate um to replace Dave Calhoun.

Um And there's just an endless debate over.

Should you go internal?

Should they have no ties to Boeing?

Should they have a lot of ties to Boeing?

Because it's a complex organization where you need a lot of credibility internally.

There is just no good answer I can show you CEO S that came from outside Boeing that did.

Well, Dave Muhlenberg, the guy who lost his job to Dave Calhoun because of the 737 max crisis in 2018, 2019.

He was an internal candidate and an engineer, Steve Mollenkopf, the old Ceo of Qualcomm is running this process to find the next guy.

I would say it's probably been harder than he thought, right?

Uh We haven't seen basically any development in months.

Um And it is, it is gonna be tough to handicap like to answer your question directly.

Shanahan is one of the leaders, I would say Stephanie Pope internal candidate is one of the leaders in the clubhouse and we'll just have to see how it develops.

All right, we'll bring you back when we have the news.

Al Thank you so much for being on the show today.

I always love to have you.

Yep.

See you guys.