In the Spotlight: 2025 Signifies a Pivotal Moment for Boeing's Destiny
The upcoming year is pivotal for Boeing to demonstrate to customers, suppliers, investors, regulators, and competitors that it is genuinely on the path to recovery. Ever since 2018, when the first MAX operated by Lion Air crashed, causing the death of all 189 passengers, Boeing has been battling instability due to production halts, regulatory oversight, and labor turbulence. As the former industry titan, its troubles covertly affected the supply chain and the airline sector, which yearned for new aircraft to fulfill the escalating demand for travel post-pandemic.
One year ago, Boeing seemed to be on an upward trend. However, in January 5 of this year, an inflight door malfunction on an Alaska Airlines MAX 9 resulted in an uncontrolled decompression, narrowly avoiding another fatal accident. Subsequent events, including the ousting of the head of the commercial aircraft unit, the resignation of the CEO, and the recruitment of a new CEO, led to a month-long strike and mass layoffs of 1,700 employees.
Before the second MAX crash in March 2019, when it was revealed that the aircraft had a systemic design issue, Boeing's share price peaked at an all-time high of $430.19. Since then, the 52-week low this year reached $137.03 – a 68% decrease. Since new CEO, Kelly Ortberg, took over, the stock price has rebounded to $180 at the end of the year, spurred by hopes of further progress.
To shore up its finances, Boeing raised more than $25 Billion in debt and credit arrangements and signaled its intent to sell off several non-core service units to bolster its cash reserves and reduce debt. Despite this, a prolonged ramp-up of MAX production to 2025 looms forth.
Boeing restarted the MAX line on December 10, following the settlement of the IAM strike. The crucial period now lies in maintaining stable and consistent production, free of safety concerns, to restore the FAA and other regulatory agencies' confidence and provide the supply chain with clear production signals.
However, achieving a steady production rate of more than 30 per month in 2025, increasing from the current 18 per month, will be challenging due to the chaotic state of the supply chain and the persistent component supply problems, notably with engine suppliers such as SAFRAN and General Electric.
Following the Alaska incident, the FAA imposed a monthly production cap of 38 units, down from Boeing's pre-strike rate of 25 units per month. By 2025, Boeing aims for a steady monthly rate of close to 30 units, with a continual increase from a lower starting point.
Consistently hitting a cash-generating delivery quantity is vital to achieving profitability for the program in the long term. Boeing has an order backlog of 4,600 units, with the airline industry crying out for new aircraft.
Meanwhile, the MAX continues to sell well, with low-cost Turkish carrier Pegasus recently placing an order for up to 200 737 MAX10s.
But Boeing also faces the challenge of losing key engineering talent, who are departing due to layoffs or other aerospace opportunities, such as space or electric air vehicles. For instance, rivals Embraer and Airbus are rumored to be considering new aircraft for the mid-market segment, which the MAX currently serves.
Embraer is a cautious company, and a financially and operationally stable Boeing could deter a challenge to its position. Bombardier proved, the hard way, that challenging the two giants with a well-designed aircraft (the C-Series) ended with Airbus acquiring the program at a bargain price after years of sluggish sales, leading to Bombardier's exit from the commercial transport aircraft business.
In 2018, Boeing was manufacturing the MAX aircraft at a rate of 52 units per month. Now, its recipe for survival involves consistently maintaining a production rate 40% below the peak level, without compromising quality or safety. If it achieves this in 2025, it earns the right to tackle the other essential tasks needed for its long-term sustainability and success.
These tasks include:
1 - Establishing a culture and vision that attracts new talent and lays the foundation for a new aircraft launch – something Boeing hasn't done in 20 years since the 787.
2 - Implementing a more comprehensive restructuring of its management and processes, beyond routine top-down cost-cutting.
3 - Regaining the trust of its supply chain and airline customers to reverse its market share decline.
New CEO Ortberg has taken the initial steps, but the upcoming year will serve as a critical test to demonstrate that Boeing can maintain a positive upward trajectory. Further senior management departures and organizational changes are likely, but everyone wishes him luck in the crucial New Year.
Boeing's supply chain struggles persist, affecting component suppliers like General Electric and SAFRAN, hampering the goal of increasing MAX production to 30 units per month by 2025. Despite facing challenges with key engineering talent departure, Boeing’s rival, Airbus, is reportedly considering new aircraft for the mid-market segment, a segment currently served by the MAX.
Pegasus Airlines, a low-cost Turkish carrier, recently placed an order for up to 200 737 MAX10s, indicating continued demand for Boeing's aircraft. To appease regulators and maintain a steady production, Alaska Airlines continues to operate under a monthly production cap of 38 units, down from its pre-strike rate of 25 units per month.
Boeing's focus shifts to long-term survival, aiming to consistently maintain a lower production rate compared to its peak level, without compromising quality or safety. Key tasks for Boeing's sustainability and success include developing a culture and vision to attract new talent, implementing comprehensive restructuring, and regaining trust in its supply chain and airline customers.
