Welcome to my latest video presentation for Aircraft Value News. The article below is a condensed transcript; my video continues additional details and several charts.
To quote the title of a classic children’s book, Boeing continues to have a “terrible, horrible, no good, very bad” year.
Lease rates and base values for all Boeing aircraft are increasingly threatened by the plane maker’s reputational woes and production problems.
Boeing’s crisis began with the tragic crashes of its 737 MAX aircraft, events that not only claimed lives but also revealed systemic flaws in the company’s design, certification, and safety processes. The fallout was swift and severe, as regulatory scrutiny intensified, public trust eroded, and Boeing’s once unassailable reputation was called into question.
While much of the focus has understandably centered on the 737 MAX, the repercussions of Boeing’s safety scandal have reverberated across its entire product line, including its flagship aircraft, the Dreamliner.
On April 16, United Airlines reported that the consequences of Boeing’s quality control lapses pushed the air carrier into the red during the first quarter of 2024.
According to the airline, the grounding of 737 MAX 9 jets following the Alaska Airlines door plug fiasco cost UAL more than $200 million in losses. Were it not for the grounding and subsequent inspections mandated by the U.S. Federal Aviation Administration (FAA), United would have turned a profit during the quarter, the company said.
United’s fleet of 86 MAX 9 jets make up 80% of its mainline plane inventory, a larger percentage than any other airline.
United now expects to receive only 61 single-aisle Boeing jets in 2024, about 40% fewer than it planned to receive at the beginning of 2024. The airline also is no longer expecting to receive any deliveries of 737 MAX 10 jets this year. The FAA has yet to bestow its blessing upon this next-generation Boeing model.
In yet another blow to Boeing’s sales and competitiveness, United also announced April 16 that it plans to lease 35 A321neo planes. This Airbus model is a direct competitor to Boeing’s 737 MAX jets. United expects to receive the new Airbus planes in 2026 and 2027.
On April 24, Moody’s downgraded Boeing’s credit rating. Boeing burned through a lot of cash in the first quarter of 2024. Fitch and S&P Global Ratings soon followed suit. Boeing is now saddled with a credit rating that’s on the cusp of junk.
Safety versus profits…
Boeing has not launched a “clean sheet” jetliner since the 787 program began in 2004. Instead of building new airplanes to expand and upgrade its fleet, the company spent over $60 billion on stock buybacks in the years leading up to the 2019 grounding of its MAX fleet. Just between 2013 and 2019, the company bought back a staggering $43.5 billion in shares.
To free up money to pay for stock buybacks, the company restrained pay increases for regular employees, reduced the number of quality control employees, and cut corners on safety.
Not one penny of that money did anything to increase the value of Boeing. Instead, it simply manipulated upward the price of the stock, as the purchased and retired shares vanished from the marketplace.
Because most of the company’s senior executives get the bulk of their compensation in stock rather than pay (to avoid the corporate loss of tax deductibility on salaries over $1 million), the benefit of the stock buybacks went primarily to Boeing’s executives and stockholders. Regular salaried and hourly employees were left out of the equation altogether, as was much of the ability to grow the company.
On April 17, the U.S. Senate heard testimony from a Boeing whistleblower who alleged serious safety lapses within the company’s manufacturing processes.
On April 25, Southwest Airlines reported a wider-than-expected first-quarter loss and lowered its growth estimate for the year. According to the airline, it now expects to grow capacity by just 4% this year, versus an earlier estimate of 6%.
Southwest’s fleet is made up entirely of Boeing 737 jets. That fact led the carrier to report an adjusted loss per share of 36 cents, versus analyst estimates of a 34-cent loss.
The clear beneficiary of Boeing’s ever-deepening scandal is its European-based archrival Airbus.
Airbus set a sales record in 2023, clearly beating Boeing (see my video for charts). Boeing’s deliveries of commercial aircraft have waned in the first three months of 2024, according to company reports published April 7.
Boeing delivered just 83 planes in Q3, down from 130 in the same three-month period of last year. In the meantime, Airbus witnessed an uptick in Q1, having delivered 142 of its planes, representing an increase from its Q1 2023 figure of 127.
For more data on Boeing, Airbus, and the entire aviation industry, read the May 6 issue of Aircraft Value News.
