Boeing loses when it has everything to gain

NEW YORK — It's hard to imagine a business with bigger walls protecting it than Boeing. The US$138 billion (S$183 billion) plane manufacturer dominates, along with rival Airbus, the commercial plane market.

Yet repeated issues, such as the grounding of Boeing 737 Max 9 planes following a blowout of a panel on an Alaska Airlines jet on Jan 5, are undermining Boeing's reputation and, worse, its finances.

Airplane manufacturing is a capital-intensive business that requires specialised engineering skills and has strategic importance to the US government.

The commercial market has and will continue to grow faster than global gross domestic product, according to Boeing. Both it and Airbus have manufacturing capacity booked for years. Customers are reluctant to defect too, as they would have to wait years for new jets and switching can mean increased operational expense from running multiple types of planes.

These qualities explain why Boeing is still operating despite a half decade of issues that would have torpedoed companies in other industries. Crashes of the 737 Max plane in 2018 and 2019 caused a nearly two-year grounding of the aircraft, followed by a US$2.5 billion settlement of a criminal probe in connection with the crashes.

Then the company, run by former General Electric executive Dave Calhoun since January 2020, suffered from the pandemic that crippled the industry and caused manufacturing setbacks.

Perhaps damage from the latest grounding will be limited. Boeing and supplier Spirit AeroSystems may be able to show the blowout was not indicative of systemic problems. Plus it had a backlog of over 5,100 planes worth some US$469 billion at the end of the third quarter.

Yet crises have zapped Boeing's strength. The backlog of planes is smaller than it was in 2018 and Maxs make up most of it, according to Jefferies. While revenue is growing, analysts think the company's top line in 2025 will still be less than the US$101 billion it recorded in 2018.

The stock has also deteriorated, with holders losing over 20 per cent of their investment over the past five years. And the company has over US$50 billion of debt, nearly four times as much as it had five years ago. Boeing should have everything to gain yet somehow it continues to lose.

Context news

US regulators grounded 171 Boeing 737 Max 9 planes for safety checks on Jan 7, after a cabin panel blew off an Alaska Airlines jet. The plane was forced to make an emergency landing.

The fuselage was made by Spirit AeroSystems. Spirit also manufactured and installed the plug that replaced an optional door at the site of the blowout on this model of airplane, according to a Reuters source.

Max planes were grounded for about 20 months, starting in March 2019, after two plane crashes linked to the planes' software killed 346 passengers.

In 2021, Boeing settled a criminal investigation by agreeing to pay US$2.5 billion of fines and victims compensation in connection with the crashes. The company blamed two employees for deceiving the Federal Aviation Administration about problems in the planes' automated flight control system.

ALSO READ: Alaska Airlines cancels more than 200 flights after FAA order