56 Business The EconomistJanuary 30th 2021
D
ave calhounis no stranger to crises. A former acolyte of Jack
Welch, he was picked to run ge’s aircraft-engines and avionics
division months before the 9/11 terrorist attacks of 2001 clobbered
the industry. In the past year or so, as boss of Boeing, he has faced
an even stiffer challenge. The company is only slowly emerging
from a 21-month grounding of its bestselling 737 max passenger jet
in the wake of two fatal crashes. Mr Calhoun must mend a cracked
corporate culture that contributed to those disasters. If that were
not enough, covid-19 has put air travel into a tailspin—and with it
airlines’ plane purchases. On January 27th Boeing announced a
fifth straight quarterly loss. A record annual net profit of $10.5bn in
2018 turned into a record $11.9bn net loss in 2020. The aerospace
giant delivered 157 passenger and cargo aircraft last year, 80% less
than in 2018 and a third as many as Airbus, the European half of the
planemaking duopoly. One analyst heaped mock-praise on Boeing
for beating its previous tally—from 1973.
Mr Calhoun now thinks recovery is on the radar. There are cer-
tainly blips of good news. A global roll-out of covid-19 vaccines
brings hope for stranded airlines. The maxis back in the air in
America and will be soon in Europe. Deliveries of the plane are re-
suming. And Boeing got away with a slap on the wrist from regu-
lators over lax safety practices. But the firm, which has destroyed
$140bn in shareholder value over the past two years, is not in the
clear. Without America’s doting government, it may never be.
Boeing began to lose its way long before the maxdisasters.
After a merger with McDonnell Douglas in 1997, engineering excel-
lence lost ground to meeting Wall Street targets. Cosy relations
with America’s Federal Aviation Administration (faa) allowed the
firm to self-certify many of its processes; one Boeing employee
boasted of “Jedi mind-tricking regulators”. When the max disaster
struck, the firm botched its response. The strategy under Dennis
Muilenburg, Mr Calhoun’s predecessor, was to talk things up, keep
suppliers humming along and pump out more maxes, never mind
that customers were cancelling orders. In late 2019, as unwanted
planes began to pile up in Boeing’s corporate car parks, Mr Muilen-
burg was tossed from the cockpit and Mr Calhoun, ten years a
board member, was handed the controls.
A combination of misfortune and lousy leadership would havebankrupted many a firm. But Boeing is no ordinary company. Be-
fore the pandemic about one in 130 American workers was em-
ployed either by Boeing, with a domestic payroll of 143,000, or by
one of its 12,000 local suppliers, with another 1m workers. Despite
lay-offs across the aerospace industry in the past year, it remains a
source of well-paid jobs—and, thanks to its weapons and space-
rocket business, a strategic darling of politicians.
Official desire to keep it aloft was obvious to anyone studying
its recent $2.5bn settlement with the Department of Justice (doj)
over the max mess. The actual fine was just $244m; most of the re-
mainder was compensation previously allotted to airlines whose
maxjets had been grounded. The company was criminally charged
but prosecution was deferred, sparing it the worst consequences.
And as one arm of the government sought to punish Boeing, an-
other offered it a backdoor bail-out. The Federal Reserve’s flooding
of capital markets with liquidity in response to the pandemic was
designed largely with firms like it in mind. As a result, Boeing was
able to borrow $25bn from private investors, avoiding the strings
attached to a direct rescue.
Even so, it remains financially fragile. Its gross debt has more
than doubled to $63bn over the past year. It is burning cash faster
than early jumbo jets drank kerosene. Its free cashflow (after fac-
toring in the cost of operations and maintaining capital assets)
was minus $20bn in 2020. Operational fragility, meanwhile, ex-
tends beyond the max. Last quarter Boeing shipped just four 787
Dreamliners, after wrinkles were discovered on the plane’s fuse-
lage. Compensation claims for delayed deliveries may result in a
charge of up to $3bn. Boeing is taking a $6.5bn charge against an-
other wide-body model, the 777x, delivery of which has been
pushed back three years owing to uncertain demand for air travel.
With civil aviation stalling, the defence-and-space division has
become Boeing’s main engine. It sold $26bn-worth of gear in 2020,
against $16bn for passenger and cargo jets. National defence bud-
gets are rising; America’s is up by over $90bn since 2016. But even
here Boeing is sputtering. A software error sent its Starliner space
capsule off its target, the space station, on its first launch in 2019.
This month nasahad to shut down a new Boeing rocket engine a
minute into an eight-minute test after a technical glitch.Cashless in Seattle
All these problems need fixing at a time of unprecedented strain
on the balance-sheet. They are forcing Mr Calhoun to delay invest-
ing for the future. Boeing’s net research-and-development spend-
ing was almost a quarter lower in 2020 than in the previous year.
To conserve cash, it is closing a big research centre in Seattle,
where innovations such as the 787’s lightweight carbon-compos-
ite fuselage were dreamed up. Boeing’s capital expenditure
slumped from $1.7bn in 2019 to $1.3bn in 2020. Despite pandemic-
related cuts, that of Airbus is closer to $2bn, leaving it with more
resources to develop climate-friendlier aircraft.
To have a fighting chance against Airbus, which bagged 1,200
more orders than Boeing in 2015-19, Mr Calhoun must restore cash-
flow. That will require regaining the trust of customers, many of
which are foreign airlines that will look askance at any sign that
Boeing lacks credibility—or at its continuing regulatory capture of
the faaor doj. It needs to persuade them to love the max again, a
task made harder by fresh allegations that the model’s problems
may extend beyond its flight-control software. If all else fails, Boe-
ing can always count on its friends in government to offer a para-
chute. Whether Mr Calhoun gets one is another matter. 7Schumpeter The state bird of Washington, DC
Can Boeing fly without government help?