The Most Critical Year – 2025 Will Determine Boeing’s Future

The coming year will be crucial for Boeing to show customers, suppliers, investors, regulators and competitors that it truly is on the road to recovery. Since 2018, when the first MAX flown by Lion Air crashed killing all 189 occupants, Boeing has struggled to maintain stability through production halts, regulatory oversight and labor unrest. As the once leader of the industry, its woes rippled backward through the supply chain and forward into the airline industry which desperately needed new aircraft to meet the rising demand for post-pandemic travel.

Twelve months ago Boeing appeared to be regaining altitude. Then on January 5 of this year, a door plug on an Alaska Airlines MAX 9 blew out causing an uncontrolled decompression and narrowly averting another fatal accident. The following months saw the firing of the head of the commercial aircraft unit, resignation of the current CEO and recruitment of a new CEO, a month long strike and a forced layoff of 1,700 employees, amidst production caps imposed by the FAA.

Prior to the second MAX crash in March 2019, when it became apparent that there was a systemic design issue with the aircraft, Boeing’s stock hit am all time high of $430.19. Its 52 week low this year was $137.03 – a 68% decrement. Since the new CEO, Kelly Ortberg, has taken over, the stock has recovered to $180 at year end in anticipation of further progress.

Boeing calmed the financial markets by raising over $25 Billion in debt and credit arrangements, and has telegraphed its willingness to divest several non-core service units (see Forbes.com December 18 “Back to the Future” – The Great M&A Journey for Boeing) to further improve cash and reduce debt. However, it faces a slow ramp up of production for the MAX aircraft in 2025.

Boeing restarted the MAX line on December 10, a month after the settlement of the IAM strike. To its credit, it used the delay to reinforce quality and safety processes to ensure a smooth resumption of production. Maintaining steady and consistent production, free of safety concerns, is paramount to restoring confidence with the FAA and other regulatory agencies and providing the supply chain with the demand signals to which they can align.

This will be a difficult task, given the current disarray of the supply chain from start and stop dynamics and the continuing issues with component suppliers that stymie the build up of higher level systems. This is especially true of the engine suppliers, such as SAFRAN and General Electric, which build the CFM LEAP 1-B engine – the sole propulsion system on the MAX.

After the Alaska incident, the FAA had capped production of the MAX at 38 per month. Prior to the strike, Boeing was at a 25 per month rate. In 2025, production is expected to average close to 30 per month, with a continuous rate increase through the year off a smaller starting point of 18 per month.

Achieving this rate on a sustained basis is critical to turn the program cash positive. With a backlog of 4,600 orders, and an industry clamoring for lift, consistently hitting a cash producing delivery quantity is the long term path for solvency.

And because of the need for new aircraft, the MAX continues to sell well. Earlier this month Turkish low cost carrier Pegasus placed an order for as many as 200 737 MAX10’s.

Against this scenario, Boeing must also cope with the loss of senior engineering talent critical to the creation of a new airplane, many of whom are departing due to layoffs or greener pastures in other parts of aerospace, such as space or electric air vehicles. For months, Embraer has been rumored to be considering a new airplane to serve the “middle market” above the current seat count of the MAX. Airbus has become the market share leader because its largest A321 is favored by airlines to serve this growing segment.

Embraer is a very capable and cautious company, and a Boeing that is proving to be able to recover financially and operationally will potentially avert a challenge to its position. Bombardier learned the hard way that challenging the two behemoths with a very good airplane (the C-Series) ended with Airbus buying the program for a song after years of moribund sales forcing Bombardier to exit the commercial transport aircraft business.

In 2018, Boeing was producing the MAX aircraft at 52 per month. It’s recipe for recovery now is to sustainably maintain a rate 40% below that peak without quality or safety issues. If it can achieve that in 2025, it earns the right to begin the other tasks critical to its longer term success and survival.

These include:

1 – Creating a culture and future vision that attracts new talent and provides the base for the launch of a new aircraft – something it hasn’t done for 20 years since the 787.

2 – Undertaking a more in depth streamlining of its management ranks and processes than is occasioned by a 10% top-down mandate. These belt tightenings, without changes in underlying work, never persist.

3 – Continuing to gain the confidence of the supply base and airline customers in order to reverse its decline in market share.

Mr. Ortberg, who arrived in August, has taken the key first steps, but the coming year will be the critical period to show that Boeing can maintain a climbing trajectory. Expect more senior management departures and organizational change. But we all wish him luck in the crucial New Year.