(Bloomberg) -- Boeing Co. Chief Executive Officer Kelly Ortberg provided an unvarnished view of his company at a crossroads, absorbed by challenges ranging from huge debt to serious performance lapses that it needs to address before it can consider developing a new aircraft.
In his first public presentation, Ortberg laid out a blunt assessment of what must change, saying Boeing has “some really big rocks that we need to get behind us to move the company forward.” Among the most immediate tasks, he said, is ending a strike that has crippled Boeing for weeks. Workers vote later today on whether to ratify a new contract offer.
“It will take time to return Boeing to its former legacy, but with the right focus and culture, we can be an iconic company and aerospace leader once again,” Ortberg told employees in a message on Wednesday.
Ortberg laid out a four-pronged plan that includes rebuilding a culture where management is close to the action to prevent “the festering of issues.” He’s also brought back detailed business reviews intended to unearth operations breakdowns before they morph into full-blown crises. And as it works to stabilize its business, he insisted Boeing can’t lose focus of building an all-new airplane.
“Boeing is an airplane company and at the right time in the future, we need to develop a new airplane,” Ortberg said in prepared remarks to investors. “But we have a lot of work to do before then.”
Cash Drain
Boeing fell 1.5% at the start of regular trading in New York, with investors already prepared for lackluster results after Boeing provided a preview earlier this month.
The planemaker recorded $5 billion in accounting charges, while its revenue of $17.8 billion fell short of analyst estimates. The company had negative free cash flow of $2 billion in the quarter, bringing the total it has burned through so far this year to $10.2 billion.
Boeing’s two biggest divisions struggled in the quarter. Its commercial airplane division reporting an operating loss of about $4 billion as the company announced a new delay for the first 777X jetliner and set plans to wind down production of its 767 freighter.
Boeing’s defense and space business lost $2.38 billion, mainly due to additional cost overruns on fixed-price contracts for its KC-46 tanker, Starliner spacecraft and other programs. Ortberg ousted the division’s chief, Ted Colbert, early in his tenure as CEO.
Strategic Hill
For many investors, the main event will be the strike vote later today, said Ken Herbert, an analyst with RBC Capital Markets. When Ortberg and Boeing Chief Financial Officer Brian West host an earnings call later this morning, listeners be looking for details on the underlying state of Boeing’s business during the labor strife and its plans for recovery.
“Honestly, to me it’s just how much is he comfortable saying now given that he’s been there two months, the strike’s still going on and he’s got a massive long-term strategic hill to climb,” Herbert said.
The planemaker has been beset by cascading crises since a door-shaped panel blew off a 737 Max 9 model during flight in early January, and with the six-week-long strike compounding its problems.
Ortberg sought to lay out a road map for Boeing’s revival, infused with a sense of optimism that customers and employees want the company to succeed. Boeing also has more than $500 billion worth of aircraft in its backlog, which should aid the recovery, he said.
Much of his four-page memo was devoted to changing Boeing’s culture, with Ortberg appealing to a pride in past accomplishments, a sense of common destiny and a drive for collaboration. That’s a shift in tone and strategy from the laser focus on shareholder returns and discipline around costs espoused by other Boeing leaders over the past 20 years.
All but one of Ortberg’s recent predecessors were veterans of General Electric Co. under Jack Welch, reluctant to sketch out grand visions for the company or acknowledging Boeing’s past as an aerospace pioneer.
Ortberg’s assessment is “encouraging, as Boeing has historically been averse to recognizing that it has issues, let alone actually fixing them,” said Rob Stallard, an analyst at Vertical Research Partners.
Junk Rating
Ortberg also acknowledged that Boeing needs to get its finances in order if it wants to achieve any of its goals. The company recently put in place the first contours on a refinancing package that could reach $25 billion over the next three years, as Boeing seeks to prevent its credit rating from falling into junk territory.
“I’m confident that we have a good path forward to manage the realities of our business and retain our investment grade rating,” Ortberg said.
Credit-rating agencies have put Boeing on review for a possible downgrade to junk status. Workers vote until 5 p.m. Seattle time on whether to ratify the tentative accord, with the result likely to be known a few hours later.
At the same time, Ortberg hinted that a future Boeing will be “a leaner, more focused organization” as he sets priorities on what the company can achieve.
Restoring the balance sheet will be a requirement for Boeing to consider its next commercial aircraft, Ortberg said. The planemaker hasn’t tackled an all-new development program since launching the 787 Dreamliner two decades ago, a risky bet given the enormous investment involved. Boeing is six years behind schedule in certifying the first 777X model, with its commercial debut now delayed until 2026.
Ortberg has begun reviewing the company’s sprawling portfolio, although he intends to keep the core commercial and defense products intact, he said during an interview on CNBC. Still, there are areas where Boeing can streamline and be more efficient, he said, calling Boeing “overstaffed for its business going forward.”
“I would rather err on the side of doing less and better than doing more and not doing it well,” he said.
