At the center of the aviation safety controversy, Boeing released its fourth quarter 2023 financial report on January 31 local time, which exceeded market expectations.
Boeing's total revenue for the quarter reached $22 billion, a year-on-year increase of 10.2%, while its net loss narrowed from $660 million in the same period last year to $30 million. The net loss for the whole year is still $2.242 billion, but it has also decreased by 55% compared to the same period last year.
From the data alone, it seems that Boeing has finally emerged from the haze of sluggish demand in the aviation industry. After the financial report was released, Boeing's stock price even rose by nearly 6%.
But what the outside world cares more about is not these data, but how Boeing will face the darkest moment ahead.
Since the Alaska Airlines hatch explosion on January 5th this year, Boeing's stock price has fallen nearly 16% and its market value has evaporated by approximately $28 billion. The just released financial report only includes data as of December 31, 2023, and cannot show the serious negative impact of Boeing's multiple accidents since January this year.
In previous years, Boeing would announce its goals and outlook for next year's performance in its year-end financial report to provide investors with reference, but this year Boeing has chosen to remain silent.
"Now is not the time to do this," Boeing CEO Calhoun said, stating that Boeing will focus on how to deliver safe aircraft to customers.
Previously, on January 30th local time, multiple Boeing shareholders filed a class action lawsuit against Boeing in a federal court in Alexandria, Virginia, accusing the company of "prioritizing profits over safety.".
Boeing's "Last Good Day"
If there were no subsequent door explosions on the 737MAX9 aircraft, Boeing had hoped to get out of the quagmire.
Looking at the data for the entire year of 2023, Boeing not only produced impressive financial results in the fourth quarter, but also achieved an overall revenue of $77.79 billion, a year-on-year increase of 16.79%. Among them, Boeing's commercial aircraft business, which is the most closely watched by the market, saw a year-on-year increase of 30% in revenue, reaching $33.9 billion, and achieved a turnaround from losses to profits in the fourth quarter of 2023.
As of the end of 2023, Boeing still had $3.38 billion in cash flow on its books.
But the fourth quarter of 2023 may be Boeing's last good day, and just emerging Boeing has fallen into a new crisis.
Calhoun once told Boeing shareholders last year, "In the past few years, we have increased the rigor of our quality processes, hiring tens of thousands of engineers and mechanics... most importantly, we strive to create a culture of being willing to speak up and transparently raise any questions, so that we can prepare for the future."
Just a week after this statement was made, Boeing delivered a 737MAX9 aircraft to Alaska Airlines, which was the one with a hatch explosion during flight on January 5th.
"The leadership is more concerned about whether the aircraft can be sold than its quality," said Ed Pearson, a former Boeing executive and current executive director of the public interest organization Aviation Safety Foundation.
Not many people will believe Boeing's promise of "safety" anymore.
Regulatory authorities quickly discovered that safety hazards and quality issues were widespread on Boeing aircraft.
A number of airlines in the United States have found that the screws of Boeing aircraft purchased or leased by themselves are loose. Even on the special Boeing aircraft of US Secretary of State Antony Blinken, they also found safety hazards. Even in the new aircraft that Boeing has just delivered to government customers, they also found wrenches, garbage and even empty tequila bottles.
In the face of inquiries from the Federal Aviation Administration (FAA), although Calhoun has repeatedly acknowledged, "We caused this problem, and we understand this." The fact is that the public's credit for Boeing has become irreparable.
Putting profits above safety
How did Boeing, one of the world's largest aircraft manufacturers, fall here?
It is widely recognized that the internal collapse of Boeing has been ongoing for decades, and the most important milestone was the merger of Boeing and McDonnell Douglas in 1997.
In the decade following the end of the Cold War, 51 US defense and aerospace contractors gradually merged into five major companies, including Boeing and McDonnell Douglas. At that time, Boeing, with its engineering culture at its core, was synonymous with safety and quality.
Bank of America aerospace analyst Ron pointed out that this actually led to Boeing's lower profitability than some similar manufacturers at the time, prompting Boeing to decide to adjust its business strategy.
Coincidentally, at that time, most of the executives at McDonnell Douglas were skilled at cutting costs, pursuing profits, and putting shareholder interests first. So in the merged Boeing company, the engineers and management team who were deeply involved in the industry were constantly replaced by professional managers who lacked aviation background but were skilled in financial games.
In fact, the business strategies of former Boeing CEO McNaughty and current CEO Calhoun are deeply influenced by the renowned General Electric executive Jack Welch.
Welch laid off 10% of the worst performing employees every year, with over 250000 layoffs during his tenure. However, he repeatedly pushed up General Electric's stock price, making him a role model for business leaders at the time.
Seeing the successful cases of General Electric, Boeing has since started to regularly lay off employees on a large scale. After the labor management conflict escalated into a 58 day strike in 2009, Boeing ultimately decided to establish a low-cost factory in South Carolina that did not allow unions.
The treatment of Boeing's tens of thousands of subcontractors is also controversial. Richard Abrafia, Managing Director and Aerospace Analyst at Aerodynamics Consulting, pointed out that "Boeing treats suppliers like it treats its grassroots employees, treating them as disposable goods."
In the book "Blind Flight: The Tragedy of the 737 MAX and Boeing's Decline," journalist Peter Robinson found through investigation that in pursuit of higher production efficiency and gross profit than Airbus, Boeing continuously outsourced its business, ultimately losing its ability to fine tune control and supervise product components.
According to Bloomberg, Dixon, former head of fuel system engineering for the Boeing 737MAX model, once said that sales managers were excited to sell planes delivered four years later to quickly earn commissions, but left the cost issue to the engineering team.
In 2016, Boeing began to reduce production time and costs as part of mid-level performance evaluation. In 2018, Dixon's superiors warned him that if he could not achieve his goals, he would receive a salary cut.
While reducing costs and increasing efficiency, Boeing executives spent over $43 billion on repurchasing stocks within 10 years and paid nearly $22 billion in profits to shareholders, exceeding investor returns for 12 consecutive years.
This management strategy was once considered successful within Boeing. In 2018, Boeing's revenue exceeded $100 billion for the first time in history, and the company's performance was thriving. At that time, Airbus suffered financial difficulties due to the failure of the A380, resulting in losses of over 25 billion US dollars.
But the good times didn't last long. The two serious air disasters in 2018 and 2019 were undoubtedly the trigger for Boeing's collapse, leading to a long-term safety crisis for Boeing's main aircraft model, the 737MAX. Following the outbreak of the epidemic, the global aviation industry was on the brink of bankruptcy, and Boeing continued to lay off 16000 experienced employees in order to reduce costs and increase efficiency.
In 2022, as the aviation industry struggled to recover, Boeing relocated its headquarters from Chicago to Washington D.C., which had no industrial foundation, closer to the Pentagon. The news was announced the same week that Airbus stated that its factory in Alabama, USA was increasing production of commercial aircraft.
Faced with the crisis, Boeing chose to lobby the Pentagon and the US Congress to provide defense funding, while Airbus made every effort to ensure aircraft production. The strategic gap between the two aircraft giants is a matter of judgment.
The Boeing, which is big but never collapses
Boeing's strategy of prioritizing profits over safety has dragged itself into a quagmire for five consecutive years without achieving profitability, and the incidence of aircraft accidents seems to be increasing.
In the industry of aircraft manufacturing, where the two giants are growing and falling, Boeing's downfall also means it has handed over the market to Airbus.
According to the latest data from the official websites of the two companies, there are currently over 10000 Boeing commercial aircraft and over 13600 Airbus aircraft in service worldwide.
According to Bloomberg, after the Boeing cockpit door explosion, United Airlines began negotiating with Airbus to purchase more A321neo jets to replace the delayed delivery of Boeing aircraft.
Not only are there more aircraft in service, but the market expects Airbus to outperform Boeing in its 2023 financial report. According to the currently released financial reports for the first three quarters of 2023, although Airbus's total revenue for the year is still expected to be lower than Boeing's, unlike Boeing, which suffered a loss of over $2 billion for the year, Airbus has already achieved profitability in the first three quarters of 2023.
Airbus had a total revenue of 38.119 billion euros (approximately 41.1 billion US dollars) and a net profit of 2.568 billion euros (approximately 2.77 billion US dollars) in the first three quarters. Airbus previously expected a net profit of 4.3 billion euros (approximately 4.68 billion US dollars) for the full year of 2023.
In addition, Airbus delivered 735 commercial aircraft in 2023, while Boeing only had 528.
Despite this, Boeing is still "big but not falling".
Abrafia pointed out that "this is a very special industry with a high entry threshold and only two players." This means that any customer who places an order with Airbus now has to wait in line for Airbus to complete the backlog of over 8600 aircraft orders before they can possibly obtain the aircraft. With current Airbus production, it may take 10 years to wait.
In the current situation where the domestically produced C919 aircraft in China has not yet obtained EASA airworthiness certification and has gone abroad, if a global airline wants to expand rapidly, even if facing safety concerns, it can only expand its fleet faster by placing an order with Boeing. For example, many low-cost airlines are usually interested in taking over Boeing aircraft orders that major airlines have suspended due to safety concerns.
Considering cost, most airlines also find it difficult to switch aircraft brands. Pilots are almost all specialized in a narrow or wide body aircraft, making it difficult to switch models or even aircraft brands. Having different brands and models of aircraft at the same time means that airlines need to purchase a large amount of expensive components. For example, the fleet of Southwest Airlines in the United States is all Boeing 737 series.
This current situation may be the same as Boeing's confidence in refusing reform despite constantly admitting its mistakes.
Calhoun admitted in an interview with Fortune magazine in the summer of 2023 that Boeing does have cultural issues, and employees "find it difficult to maintain honesty with each other," but he did not feel that the company "prioritizes profits over safety.".
In a 2019 report by The New York Times, more than a dozen former Boeing employees interviewed all stated that they were aware of many safety hazards during the assembly process of Boeing aircraft, but once potential issues were raised, they would be dismissed for various reasons.