The most important year – 2025 will determine Boeing’s future

The next year will be critical for Boeing to demonstrate to customers, suppliers, investors, regulators and competitors that the company is indeed on the road to recovery. Since Lion Air’s original MAX crashed in 2018, killing all 189 people on board, Boeing has struggled to maintain stability through production shutdowns, regulatory scrutiny and labor unrest. Once an industry leader, the company’s woes have trickled down the supply chain to the airline industry, which is in dire need of new planes to meet increased demand for travel post-pandemic.

Twelve months ago, Boeing appeared to be regaining altitude. Then, on January 5 of this year, a door plug on an Alaska Airlines MAX 9 exploded, causing an uncontrollable decompression and narrowly avoiding another fatal accident. The following months saw the firing of the head of the commercial aircraft division, the resignation of the current CEO and the hiring of a new one, a month-long strike and the forced layoffs of 1,700 employees amid production restrictions imposed by the FAA. .

Boeing stock hit an all-morning high of $430.19 in March 2019, when the second MAX crash revealed problems with the plane’s system design. The 52-week low of the year was $137.03, a decline of 68%. Since the appointment of new CEO Kelly Ortberg, further growth has been expected, and the stock price recovered to $180 at the end of the year.

Boeing has raised more than $25 billion in debt and credit agreements to calm financial markets and telegraphed its intention to sell several non-core service units (Forbes.com Dec. 18, “Back To the Future – Boeing’s Great M&A Journey) aims to further increase cash and reduce debt. However, in 2025, production of MAX aircraft faces a slow increase.

Boeing restarted the MAX line on December 10, one month after the IAM strike was resolved. To its credit, the company used the delay to strengthen its quality and safety processes to ensure a smooth restart of production. Maintaining steady, consistent production without safety concerns is paramount to restoring trust with the FAA and other regulatory agencies and providing demand signals that can be adjusted to the supply chain.

This will be a difficult challenge given the disruption of current supply chain start-stop dynamics and ongoing issues with component suppliers that prevent the creation of higher-level systems. This is especially true for engine suppliers such as SAFRAN and General Electric, which manufacture the MAX’s sole propulsion system, the CFM LEAP 1-B engine.

After the Alaska incident, the FAA limited MAX production to 38 units per month. Before the strike, Boeing paid $25 a month. By 2025, production is expected to average close to 30 pieces per month, with continued growth throughout the year from a modest starting point of 18 pieces per month.

Achieving this rate sustainably is important for the program to be cash positive. With a backlog of 4,600 orders and an industry crying out for increases, continued achievement of cash-generating delivery volumes is the long-term path to solvency.

And with the need for new aircraft, the MAX continues to sell well. Earlier this month, Turkish low-cost carrier Pegasus placed an order for 200 737 MAX10s.

In response to this scenario, Boeing must also deal with the loss of senior engineering talent essential to the development of new planes. Many are leaving due to layoffs or greener pastures in other areas of the aerospace field, such as astronauts and electric aircraft. For months, Embraer has been rumored to be considering a new aircraft to serve the “middle market” beyond the current MAX’s seating capacity. Airbus has become the market share leader because its largest aircraft, the A321, is preferred by airlines serving this growing segment.

Embraer is a very competent and prudent company, and Boeing, which is proving financially and operationally resilient, may avoid challenging its position. Bombardier had the bitter experience of challenging two giant companies with a very good airplane (the C series), but sales stalled for years and Bombardier was forced to exit the commercial transport aircraft business. Airbus later ended up acquiring the song program.

In 2018, Boeing was producing 52 MAX aircraft per month. The key to recovery now is to sustainably maintain that peak value below 40% without creating quality or safety issues. Achieving that in 2025 would earn us the right to undertake other tasks essential to our long-term success and survival.

These include:

1 – To create a culture and a vision for the future that attracts new talent and provides the basis for the launch of new aircraft. This hasn’t been done in 20 years since the 787.

2 – Undertake radical streamlining of management and processes rather than being driven by top-down mandates from the 10%. This belt-tightening will never last unless there is a change in the underlying work.

3 – Continue to win supply base and airline customer trust to reverse market share decline.

Mr. Ortberg, who arrived in August, took an important first step, but next year will be a critical time for Boeing to show it can maintain its upward trajectory. Further retirements of senior management and organizational changes are expected. But we all wish him good luck in the important New Year.