Boeing said Wednesday it lost $355 million due to declining first-quarter sales, another sign of the crisis facing the plane maker. increasing control about the safety of its planes and accusations of shoddy work from a growing number of whistleblowers.
CEODavid Calhoun said the company is in “a difficult moment” and the focus is on solving its production problems, not on its financial results.
Since the door plug, business leaders have been forced to talk more about safety and less about finances blown out of a Boeing 737 Max during an Alaska Airlines flight in January, leaving a gaping hole in the plane.
The accident put an end to the progress Boeing seemed to be making as it recovered two fatal accidents of Max jets in 2018 and 2019. Those crashes in Indonesia and Ethiopia, which killed 346 people, are now also back in the spotlight.
About a dozen family members of passengers who died in the second crash met with government officials in Washington for several hours on Wednesday. They asked officials to revive a criminal fraud charge against the company by finding that Boeing violated the terms of a 2021 settlement, but were left disappointed.
Boeing officials made no mention of the meeting but talked repeatedly while discussing quarterly results about a renewed focus on safety.
“While we report first quarter financial results today, our focus remains on the significant actions we are taking following the Alaska Airlines Flight 1282 accident,” Calhoun told employees in a memo on Wednesday.
Calhoun listed a series of actions the company is taking and reported “significant progress” in improving production quality, largely by slowing production, which means fewer aircraft for its aviation customers. Calhoun told CNBC that closer inspections resulted in 80% fewer defects in hulls coming from the main supplier Spirit AeroSystems.
“In the short term, we are indeed in a difficult moment,” he wrote to employees. “Lower deliveries can be difficult for our customers and for our finances. But safety and quality must and will come first.”
Calhoun, who wants step down at the end of the year he again said that he has full confidence that the company will recover.
Calhoun became CEO in early 2020 as Boeing struggled to recover from the Max crashes, prompting regulators to ground the planes worldwide for nearly two years. The company then thought it had avoided any risk of criminal prosecution the Justice Department agreed not to prosecute the company for fraud if it complied with US anti-fraud laws for three years – a period that ended in January.
Boeing has reached confidential settlements with the families of the passengers who died, but the relatives of the Ethiopia crash victims continue to pressure the Justice Department to sue the company in federal court in Texas, where the settlement was filed . On Wednesday, department officials told family members that the agency was still considering the case.
As he left the meeting, Paul Cassell, an attorney for the families, called it “all for show.” He said the Justice Department appears determined to defend the deal it secretly struck with Boeing.
“We just want the case to move forward and let the jury decide whether Boeing is a criminal or not,” he said.
It was an emotional encounter, said Nadia Milleron, whose daughter Samya Stumo died in the 2019 crash.
“People are angry. People scream. People are starting to talk over other people,” said Milleron, who watched online from her home in Massachusetts while her husband attended in person. Family members believe the Justice Department is “overlooking a mountain of evidence against Boeing. It’s puzzling,” she said.
According to Milleron, the head of the fraud division of the Justice Department’s criminal division, Glenn Leon, said his office could extend its investigation beyond this summer, file a lawsuit against Boeing on charges of defrauding regulators who Max, or a lawsuit could ask a Boeing judge to dismiss the suit. She said Leon has made no commitments.
The Justice Department declined to comment.
A federal judge and an appeals court ruled last year that they did not have the power to overturn the Boeing settlement. Families of the crash victims hoped the government would reconsider prosecuting Boeing after the door hit the Alaska Airlines jet on Jan. 5 as the plane flew over Oregon.
Investigators looking into the flight to Alaska say there were bolts holding the door plug in place missing after repair work at a Boeing factory. The FBI told the passengers that this may have been the case victims of crime.
Boeing shares have fallen by about a third since the blow. The Federal Aviation Administration has stepped up its oversight, giving Boeing until the end of May to draw up a plan to resolve the problems in production of 737 Max planes. Airline customers are unhappy about not receiving all the new planes they ordered due to supply disruptions.
The company said it has paid $443 million in compensation to airlines for the grounding of Max 9 jets after the Alaska accident.
Several former and one current manager have reported various problems with the production of Boeing 737 and 787 jetliners. The most recent, a quality engineer, told Congress last week that Boeing is taking production cuts that could ultimately cause the 787 Dreamliners to fall apart. Boeing pushed back aggressively against his claims.
However, Boeing has a few things in its favor.
Together with Airbus, Boeing forms half of a duopoly that dominates the production of large passenger aircraft. Both companies have years of backlogs of orders from airlines that wanted new, more fuel-efficient planes. And Boeing is a major defense contractor for the Pentagon and governments around the world.
Richard Aboulafia, a longtime industry analyst and consultant at AeroDynamic Advisory, said despite all the setbacks, Boeing still has a powerful mix of in-demand products, technology and people.
“Even if they are No. 2 and have major problems, they are still in a very strong market and an industry with very high barriers to entry,” he said.
And despite huge losses – about $24 billion in the past five years – the company is not at risk of going bankrupt, Aboulafia said.
“This is not General Motors in 2008 or Lockheed in 1971,” Aboulafia said, referring to two iconic companies that needed massive bailouts or loan guarantees to survive.
All these factors help explain why 20 analysts in a FactSet survey rate Boeing’s stock as “Buy” or “Overweight” and only two have a “Sell” rating. (Five of these are ‘Hold’ rated.)
Boeing said its first-quarter loss, excluding special items, was $1.13 per share, better than the $1.63 per share loss that analysts had forecast, according to a FactSet survey.
Revenue fell 7.5% to $16.57 billion.
Moody’s downgraded Boeing’s unsecured debt by one notch to Baa3, the lowest investment-grade rating, citing the weak performance of the commercial aircraft sector.
Boeing Co. shares closed 3% lower. They have fallen by 34% since the Alaska eruption.