Boeing said Wednesday it lost $355 million on falling revenue in the first quarter, another sign of the crisis gripping the plane maker as it faces increasing control over the safety of its aircraft and allegations of shoddy work from a growing number of whistleblowers.
CEO David Calhoun said the company is in “a tough moment” and its focus is on solving its production problems, not the financial results.
Business leaders have been forced to talk more about security and less about finances since a door jam blew out of a Boeing 737 Max during an Alaska Airlines flight in January, leaving a gaping hole in the plane.
The accident halted progress Boeing appeared to be making while he recovered two fatal crashes of Max jets in 2018 and 2019. These crashes in Indonesia and Ethiopia, which killed 346 people, are now also back in the spotlight.
About a dozen relatives of passengers who died in the second crash met with officials for several hours Wednesday in Washington. They asked officials to revive a criminal fraud charge against the company by finding that Boeing violated the terms of a 2021 settlement, but backed down in disappointment.
Boeing officials did not mention the meeting but spoke repeatedly while discussing quarterly earnings of a renewed focus on safety.
“While we report first quarter financial results today, our focus remains on the comprehensive actions we are taking following the Alaska Airlines Flight 1282 accident,” Calhoun told employees in a memo Wednesday.
Calhoun ticked off a number of steps the company is taking, reporting “significant progress” in improving production quality, much of it by slowing production, which means fewer planes for its airline customers. Calhoun told CNBC that closer inspections resulted in 80% fewer defects in the airframes from the key supplier Spirit AeroSystems.
“Near term, yes, we are in a tough 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 before everything else.”
Calhoun, who will step down at the end of the year, said again that he is fully convinced that the company will recover.
Calhoun became CEO in early 2020 as Boeing struggled to recover from the Max accidents, which prompted regulators to ground the planes for nearly two years. The company believed it had avoided any risk of criminal prosecution when The Ministry of Justice agreed not to try 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 dead passengers, but relatives of those killed in the Ethiopia crash continue to press the Justice Department to prosecute the company in the federal district court in Texas where the settlement was filed. On Wednesday, department officials told relatives that the agency is still considering the matter.
Leaving the meeting, Paul Cassell, a lawyer for the families, called it “all to see”. He said the Justice Department appears determined to defend the deal it negotiated in secret with Boeing.
“We simply want the case to move forward and let the jury decide whether Boeing is criminal or not,” he said.
It was an emotional meeting, according to Nadia Milleron, whose daughter Samya Stumo died in the 2019 crash.
“People are angry. People are yelling. People are starting to talk about other people,” said Milleron, who watched online from her Massachusetts home while her husband attended in person. Relatives believe the Justice Department is “overlooking a mountain of evidence against Boeing.” It's mystifying,” she said.
According to Milleron, the head of the fraud section of the Justice Department's criminal division, Glenn Leon, said his agency could extend its review beyond this summer, seek a lawsuit against Boeing accused of defrauding regulators that approved the Max, or ask a judge to deny the charge. She said Leon made no commitments.
The Ministry of Justice 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 blowout of the door jamb on the Alaska Airlines jetliner on Jan. 5 as the plane flew over Oregon.
Investigators looking into the Alaska flight say bolts that help hold the door stopper in place were missing after repair work at a Boeing factory. The FBI told the passengers they could be victims of crimes.
Boeing shares have fallen by about a third since the blowout. Federal Aviation Administration has stepped up its oversight and given Boeing until the end of May to come up with a plan to fix problems with making 737 Max jets. Airline customers are unhappy about not getting all the new planes they had ordered due to delivery disruptions.
The company said it paid $443 million in compensation to airlines for the grounding of Max 9 jets after the Alaska crash.
Several former and one current manager have reported various problems in the manufacturing of Boeing 737 and 787 jetliners. The latest, a quality engineer, told Congress last week that Boeing is taking manufacturing shortcuts that could ultimately cause the 787 Dreamliners to break. Boeing pushed back aggressively against his claims.
However, Boeing has a few things going in its favor.
Along with Airbus, Boeing forms half of a duopoly that dominates the manufacture of large passenger aircraft. Both companies have years of backlogs from airlines eager for new, more fuel-efficient planes. And Boeing is a major defense supplier to 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 though they're No. 2 and have big problems, they're still in a very strong market and an industry that has very high barriers to entry,” he said.
And despite massive losses — about $24 billion in the past five years — the company is not at risk of failure, Aboulafia said.
“This is not General Motors in 2008 or Lockheed in 1971,” Aboulafia said, referring to two iconic companies that needed massive government bailouts or loan guarantees to survive.
All of these factors help explain why 20 analysts in a FactSet survey rate Boeing stock a “Buy” or “Overweight” and only two have a “Sell” rating. (Five have “Hold” ratings).
Boeing said its first-quarter loss, excluding special items, came to $1.13 a share, which was better than the loss of $1.63 a share that analysts had predicted, according to a FactSet survey.
Revenue fell 7.5% to $16.57 billion.
Moody's downgraded Boeing's unsecured debt to Baa3, the lowest investment-grade rating, citing the weak performance of its commercial aircraft business.
Boeing Co. shares closed up 3 percent. They are down 34% since the Alaska blowout.
