Aircraft deliveries from Boeing almost halved quarterly amid quality concerns following an accident involving its aircraft in January.
In the first quarter of 2024, Boeing delivered a total of 83 commercial aircraft. This is down 47 percent from the 157 planes the company delivered in the prior quarter. The Boeing 737 model aircraft saw the largest decline, falling from 110 planes to 67. Deliveries of 767 and 787 models also went down. Boeing’s deliveries to the defense, space, and security industries declined from 54 to 14.
Following the incident, the U.S. Federal Aviation Administration (FAA) grounded Max 9 planes and increased scrutiny of Boeing’s manufacturing processes.
On March 4, the FAA said its six-week audit of Boeing and Spirit Aerosystems, the sole 737 fuselage supplier to Boeing, “found multiple instances where the companies allegedly failed to comply with manufacturing quality control requirements.”
“The FAA identified non-compliance issues in Boeing’s manufacturing process control, parts handling and storage, and product control,” it said.
At the Bank of America Global Industrials Conference on March 20, Boeing CFO Brian West said the company curbed 737 aircraft output following FAA scrutiny.
“There’s changes that need to happen. There’s no doubt about it. But we’re going to do so diligently and expeditiously,” he said. “We’re deliberately going to slow to get this right and we’re the ones who made the decision to constrain rates on the 737 program below 38 per month until we feel like we’re ready and we'll feel the impact of that over the next several months.”
“At the end of the day, I think on the 737, the way I think about it is the first half, the rates will be lower, second half, they’re going to be higher. As we get towards that 38 per month and beyond 38 per month, will be up for the FAA.”
Tightening Production Processes
In late February, FAA Administrator Mike Whitaker told Boeing officials that they have to develop a “comprehensive action plan” to address the firm’s systemic quality control issues and meet the organization’s safety standards.“Boeing must commit to real and profound improvements,” Mr. Whitaker said. “Making foundational change will require a sustained effort from Boeing’s leadership, and we are going to hold them accountable every step of the way, with mutually understood milestones and expectations.”
While speaking at the BoFA conference, Boeing CFO Mr. West said that the company acknowledges it needs to improve on safety and quality, with Boeing specifically focusing on “traveled work.”
In the aviation industry, traveled work refers to tasks that are not completed at their originally planned stage or location.
“Our CEO is calling for a step change improvement in how we think about traveled work,” he said. “The leadership team got it in the immediate aftermath of January the 5th (Alaska Airline incident). We control how this happens, and it’s about our resolve to get ahead and get after traveled work.”
This involves making sure that Boeing gets traveled work under control, he said. “Because once you do reduce traveled work, your quality gets better, your stability gets better, and probably most importantly, the work of the mechanic gets better.”
Meanwhile, Boeing’s shares have tanked and were trading over 30 percent down year-to-date as of 12 p.m. ET. The aircraft manufacturer is also facing challenges in ratings. Moody’s placed the company’s bonds on review for downgrade late last month.
“Placing the ratings on review for downgrade follows Moody’s belief that Boeing will be unable to deliver 737 narrow-body aircraft at the volumes required for it to materially expand its free cash flow and retire debt in a reasonable timeframe,” the agency said.
“Moody’s current projections contemplate 379 deliveries of 737 aircraft and approximately 95 deliveries of 787s in 2024.”
However, the company reported only “42 deliveries of 737s across January and February 2024, well below the FAA rate cap of 38 per month.”
In order to hit 400 deliveries this year, Boeing must average 36 deliveries for the remaining 10 months of 2024. Achieving this delivery rate while manufacturing processes are under a no defects/no traveled work policy “will be difficult to achieve,” Moody’s noted.
In September last year, the rating agency predicted Boeing’s free cash flow in 2024 to be at $6.9 billion. However, Moody’s has now reduced the projections to about $1 billion.
