Editors unpack a week that started with a unique media briefing at Boeing's Renton facility and ended with the purchase of Spirit AeroSystems.
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Transcript
Joe Anselmo:
Welcome to the Check 6 podcast. I'm Joe Anselmo, Aviation Week's Editorial Director and Editor-in-Chief of Aviation Week & Space Technology Magazine.
Last week, Boeing held its annual pre-summer media briefings. The agenda for commercial aviation was unique this year in that it wasn't focused only on program updates and the upcoming Farnborough airshow. Boeing used the briefings to spotlight what it's doing to improve its production lines and more broadly its entire safety culture. And one company official inadvertently ticked off the US National Transportation Safety Board.
Aviation Week editors Jens Flottau and Sean Broderick were at the briefings. They also walked some of the company's production lines. But before we get to that, we've got some big news that broke after they left Seattle, regarding Spirit AeroSystems, the aerostructures provider. So let's start out with that. Jens, 19 years after Boeing spun off Spirit, it's getting it back. Tell us what's going on.
Jens Flottau:
Yes. And people at the event in Seattle talked about this a lot, of course. And it's related, really. It's Boeing's effort to regain control of quality production capacity and ultimately safety. As you say, in 2004, Boeing had decided to sell off Spirit to make it a specialized entity that would be able to get access to other aircraft manufacturers, get business with them. That ultimately happened, Airbus being one major client in later years. But, as we've seen over the last few years, production quality has suffered, Spirit's financial stability has suffered.
And then, January 5 came, Alaska 1282. That accident at Alaska Airlines that was linked to a production flow at Boeing. That caused among others, Boeing, to decide to bring back Spirit in-house. Now, on the Airbus side, that triggered more decisions, the decision mainly being that Airbus wasn't going to let Boeing control Airbus work. Spirit does build the wings of the A220, the center fuselage of the A220 and the panels for the center fuselage of the A350, among others. So, the Boeing move forced Airbus to move as well. And what happened now is a well-timed joint announcement by the three parties to pursue the carve up of Spirit.
Joe Anselmo:
So, what were the financial terms of the deal?
Jens Flottau:
So, Boeing is paying $4.7 billion in stock. So, no cash exchange and is also taking up the Spirit debt, which increases the volume to just over $8 billion. The Airbus part of this deal is interesting, because Airbus pays $1 and gets $559 million in compensation from Spirit. That is a reflection of the kind of losses that Spirit makes on the Airbus programs. It also reminds me of the deal that Airbus struck with Bombardier in 2017, when they took over the CSeries program. At the time, Airbus also paid $1 for the program and got $700 million from Bombardier to cover future losses that the two companies expected.
Joe Anselmo:
Okay. So, not a surprise this deal. We knew it was coming, but it's finally happened and it's unfolding. Let's get back to what I started talking about at the beginning of this podcast, and that was the Boeing briefings in Seattle. Sean, in normal times these pre-airshow media briefings are carefully scripted. But, these clearly aren't normal times for Boeing. Do you think that you and Jens got a transparent look inside the company last week?
Sean Broderick:
It was pretty scripted. The biggest difference was what they were talking about. Typically, you look at programs you're working on or you look ahead to developments that are coming down the pike that you want to hype at the air show. But, of course, Boeing has been dealing with issues that they have been trying to shift the narrative of, both literally and figuratively. So, getting back to your question about transparency, I think we got a fairly unbiased look at some of the things that Boeing is trying to do to correct the inherent production and quality problems that it has. Now, some will look at what Boeing did, including some of the reporters that were there and say, "Look, this is Boeing just trying to point to a few things they are at least attempting to accomplish in an effort to again change the narrative around them and their ability to produce a quality product consistently, and their willingness to be more than a company that watches the bottom line or the share price."
What I took out of it, though, particularly after going onto the floor and actually seeing some of the things that Boeing is implementing is how far they need to get, especially on the 737 program, to correct the issues that are out, how many eye-opening deficiencies they have in their production. And you could do five podcasts on that. But, suffice it to say, one of the things Elizabeth Lund said really that stood out, and it's not necessarily new, but it hammered it home, is they're changing a lot of the build instructions, a lot of the directions that workers on their production floor follow to assemble airplanes and components. And she said, "Look. A lot of this has been in place for 40, 50, 60 years,' and while they've updated it, a lot of it's just been bolt on. There hasn't been a sweeping revisit to how they present information. And then, of course, how the assembly process works. The tooling is not all the same as it was back in the 1960s, but everything hasn't been updated. There hasn't been a sweeping update either. Boeing has simply continued on and bolted on, much like they developed a MAX out of the NG. That's how their production processes work too.
Well, this got really screwed up in the past couple of decades and they're beginning to fix that. But, much like this Spirit deal that we just talked about, it's not going to be done until sometime in 2025. It's going to take Boeing while to do this. They're just now beginning to roll out some of these things, like parts, work-in-progress carts that follow airplanes around. You would think this is something they'd have had in place 20 years ago, if not more. But, they're just rolling it in place now on the 737 and on the other programs really. So, I thought it was transparent, but maybe that was simply because I was using my eyes to look at this and it's the impression I got.
Jens Flottau:
I also thought it was transparent, but it wasn't obviously the full picture. They showed us some stuff, but there's obviously a lot of work and a lot of things that we didn't see. It was transparent in the sense that they showed us what they were trying to achieve, rather than what they have already achieved. They clearly told us about their targets, reducing traveled work, making it simpler for employees to understand what they're actually supposed to do. And as Sean says, you wonder ... I stood there. We were going through the factory. I was looking at these fuselages and listening to the Boeing people telling us all this, and like Sean, I thought, "Yes. That all makes sense, but why haven't you done this, as you say, 20 years ago?"
Joe Anselmo:
Part of one of the briefings you guys listened to landed in Boeing and some hot water with the NTSB, as I noted at the beginning. Tell us what happened there and how big of a deal is it?
Sean Broderick:
So, Elizabeth Lund, their Director of Quality, it's a new position that was created as part of the Alaska Airlines 1282 fallout, teed up the two days of briefings by walking us through some of the details of the Alaska 1282 accident. And I think, from what we understand anyway or what we gathered, the intent was to underscore how some very fundamental production mistakes can lead single-point-failure-style to a mere disaster. But, in recounting some of the details, which included a Spirit 737 fuselage coming in with a few very common non-conformances, five rivets in this case, that needed to be fixed. The airplane went all the way through Boeing's assembly process and at the end, Boeing and Spirit agreed on that the fix needed to be done. But, instead of doing it right away…Again, the airplane went through the assembly process, so part of the airplane had to be taken apart. A door plug had to be opened. The rivets were fixed, the door plug was closed. And this is where it gets into some details that were not provided by the NTSB before and nor were they vetted with the NTSB.
But, apparently the move crew, according to Boeing, the move crew, as in the people in charge of moving the airplane, closed the door and the airplane went on its way. Now, the problem was when the door was open, Boeing apparently has no process in place for documenting this kind of unexpected opening of a hatch that wasn't supposed to be opened at this time, for the lack of a better word. Again, the NTSB is hashing through this and they will lay it out. And so, we're only getting pieces of the story and pieces of the story that the board hasn't released yet. So, very important to underscore that, that’s where Boeing got into trouble.
What Elizabeth Lund was trying to do, was underscore how, my words not hers, incompetent Boeing's processes are that they could allow something like this to happen and have no documentation on who touched the door. She was trying to paint a picture of, underscore the incompetence and the issues that they're trying to correct. The NTSB, however, took it a different way. And Lund made a statement about, something about how the NTSB, "It's going to be up to the NTSB to figure out the who." That's what she said. It sounded like a throwaway statement to me.
When the board saw it, they took it as trying to position the NTSB as looking for scapegoats and people to blame. I personally did not think it was that way. The board, however, took it as an opportunity to remind Boeing about how incompetent they have been and how incompetent they are, especially with following NTSB rules, which Boeing has run afoul of in the past. Sent out a scathing press release, brought in a related Department of Justice investigation and it was bad. How bad was it? Boeing did not get kicked off. They are still a party to the investigation. It would take a lot to kick off a Boeing, no matter how bad you get, because these investigations, you need a Boeing much more than you need, say, a pilot's union or some other group. That's just the way it is. So, Boeing would have to do a lot to get booted off the investigation. But, they now have restricted access to some of the information, is the fallout of it.
Joe Anselmo:
I was just going to say, Sean, it sounds like a speed bump to me, compared to this Justice Department investigation of the company and the Wall Street Journal reporting the Justice Department is demanding Boeing plead guilty?
Sean Broderick:
Well, yeah. That's an interesting ... Right. Again. A whole other podcast there. Look, I think it is a speed bump. I just think, look, Boeing is making itself an easy target. So, anybody who wants to take a shot at them and, that unfortunately, we're in an era now, that includes the NTSB, which ... As much as the NTSB talks about how it has its own rules, well, the NTSB also has a mission too, and that's to push for safety changes and to investigate what happened for the purposes of doing everything you can to prevent it from happening again. How calling out a party to an investigation on things that are subjective versus objective fits into that, I just don't know. The board seems to be doing that more and more these days, especially with Boeing. Again, they're an easy target. Boeing miss-stepped, and so really at the end of the day Boeing can't afford to make any missteps, because everybody's ready to pounce on them. And that's just the reality of the situation today.
Jens Flottau:
I would say, it was clearly obviously not their intention to offend the NTSB. And she was just explaining, as you say, what went wrong at Boeing. And in a way it's a shame, because after a long, long time of closing the door, keeping the door shut, I have to really give Boeing credit for opening up, for allowing us ... And I have not been into the Renton facility since before COVID. I've not seen anything. And yes, it was scripted. The employees that talked to us were carefully selected and they made sure that we weren't wandering around talking to other people. I get all that. But, still in the end, they had a message, they wanted to talk to us, they opened the doors and this is an unfortunate outcome maybe, hopefully, on the sidelines.
Joe Anselmo:
So Jens, speaking of opening the doors, Stephanie Pope replaced Stan Deal earlier this year as the head of Boeing Commercial Airplanes, and she's one of the names being mentioned as a possible replacement for CEO Dave Calhoun, who says he'll step down by the end of the year. Did you and Sean see Stephanie at these briefings?
Jens Flottau:
No. Elizabeth Lund was the most senior Boeing person we saw at these briefings. Yeah. It is a bit telling that Pope wouldn't use the opportunity to talk to us. I would clearly say it was a missed opportunity for them to showcase their new leader of commercial aircraft after Stan Deal had to leave. I do understand however, that she will be in Farnborough and certainly hope that she will be available for meetings there.
Joe Anselmo:
Sean, you wrote in a feature for Aviation Week magazine that Boeing is not focusing on traditional OEM targets like monthly production rates. But, let's be real, this stuff matters. How long can Boeing emphasize how effectively it's changing before it needs to show real change in the form of making and delivering more airplanes?
Sean Broderick:
Look, I think that by the end of this year, they really need to have satisfied any concerns that the FAA has so that this agreed upon limit of 737 production at 38 a month is lifted. But again, the real issue is, and I think the message here, is that Boeing knows that under its current systems and processes, it can't build 38 a month without doing a bunch of rework and having a bunch of disruption because of the way things were and now for a period of time, the way things are. And that relates to the kind of changes they're putting in place.
One of the reasons why Boeing hasn't made these improvements over the last two decades, because they recognize that you have to take a few steps back sometimes in order to go forward. And they haven't wanted to do that, because of ... In down times it's, "Look, we got to make the airplanes that we can make to get the delivery payments, to have the cash flowing in." And in boom times, like right before the pandemic, it's, "Look, we just got to push the airplanes out the door."
And Boeing finally got to the point, I think, where they now, in order to get anywhere close to where they were before the pandemic, so 52 airplanes a month, they've got to fix things. And so, their focus has to be on process now, before it becomes volume. Now, we've been working with the same set of general guidance data in terms of deliveries in production since November 2022. And I’ve got to think about this. Boeing had its first investor day in I don't know, it's five years or whatever it was. They set targets. The most concrete targets they set were in the 25-26 time range in terms of overall deliveries. And then that broke back into production rates for their big programs.
They haven't come off of those much yet, but they're going to have to, because they're not going to make it on the 737. It's pretty clear that by 2025 they're not going to be making 50 a month. They're just not. 2026? Maybe. 787's a little bit better story. 777 is a whole other story. So, by the end of this year, we're going to be focused, but I would think they would have to give guidance for 2025 on deliveries. But, those are going to be different than we've heard.
And the most interesting thing, and maybe Jens can weigh in on this, Airbus has pulled back its near-term targets, recognizing that the supply chain isn't moving as quickly as they had hoped it would. Well, if Airbus can't hit its rates and Boeing is all the way down at almost half of what it wanted to be at, 30-ish, 25, they are really a half. They're not pushing out more than 20, 22, 24, 737s a month right now. That's half of where they were hoping to be.
If they're there, and Airbus is up where it is, and the supply chain's a problem, what's the climb going to be like for Boeing in this environment? That to me is a bigger watch item in a way than even if Boeing straightens its stuff out. It can only do so much. It can only control what's in its walls and the walls it buys. And there's a whole other rest of the supply chain out there that's still causing the rest of the industry fits.
Jens Flottau:
There's obviously an external and an internal part of that, and I now can't count Spirit as internal. I would like to still mention that Boeing hinted at some improvements that they're already seeing. Since they've sent so many people to Spirit to supervise the production there, apparently traveled work and mistakes and deficiencies, non-compliances are already significantly down. They also said that the flow time of the 737 in Renton is way down, is about 50% of what it was at the worst of times. But, yes once that's fixed, other challenges will appear and those are external and cannot be influenced by Boeing to the same extent that they've done this now internally and at Spirit.
Joe Anselmo:
Well, unfortunately guys, that's all the time we have, especially Jens who has to run a meeting of his team in about 90 seconds. But thank you for providing your insights. Much more to come. That is a wrap for this week's Check 6 podcast. A special thank you to our producer in London, Guy Ferneyhough.
July 4th is a big day in the US, but it's also a big day this year in the United Kingdom, where there are national elections. Join us at the end of the week for a special Check 6 from London, where we'll talk about the election results and what they mean. For now, thank you for your time and have a great week. And to our US listeners, have a great holiday.
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