A sad chapter in Boeing Co.’s history closed on Thursday when a federal judge approved a non-prosecution agreement with the Department of Justice that drops criminal charges against the company for failures of its aircraft design and manufacturing process that led to two deadly crashes and an inflight accident that by miracle didn’t kill anyone.
US District Judge Reed O’Connor in Fort Worth approved the deal, which paves the way for a $1.1 billion settlement that includes fines and compensation to family members of crash victims. O’Connor took a swipe at the planemaker in his ruling, saying the agreement “fails to secure the necessary accountability to ensure the safety of the flying public.” Still, O’Connor said denying the Justice Department’s request could be considered judicial overreach.
Resolution of this long, drawn-out legal battle is a bitter victory for Boeing. By concentrating on making high-quality planes, Boeing can now put this darkest period of its history behind it. The planemaker is now on solid footing after Kelly Ortberg took over as chief executive officer in August 2024 and made great strides to rebuild the manufacturing culture.
Ortberg has been doing and saying all the right things. He moved to Seattle, where Boeing’s largest manufacturing operations are situated, and shored up the balance sheet with a sale of shares. He took advantage of a strike that shut down production in the Seattle area for almost two months to restart the relationship with factory workers. Ortberg, who has experience as a Boeing supplier with his time running Rockwell Collins, has prepared the supply chain for increased production. The factory-floor progress persuaded the Federal Aviation Administration to approve a production rate increase for the 737 Max above the limit of 38 planes a month it had imposed earlier.
Boeing turned free-cash-flow positive in the third quarter — ahead of expectations — and is set to cash in on its backlog of 5,900 aircraft worth $535 billion.
Before looking only to the future, it’s important that Boeing executives never forget the lessons learned from actions that got the company into trouble and that should never be repeated. If Ortberg continues to do the right things, Boeing is about to become awash in cash as it increases production for planes that airlines have been waiting impatiently to receive. Investors will begin calling for some of this cash to be returned to them. Boeing needs to resist this call until the company has taken back the market share it lost to Airbus SE and is successful at designing and certifying a new, clean-sheet aircraft.
In the last shareholder-return binge, Boeing paid out $60 billion in dividends and buybacks from 2012 to 2019. To fund these generous returns, management embarked on aggressive programs to drive down workforce and production costs. Meanwhile, Airbus got ahead on new aircraft offerings and relentlessly took market share from the once-larger Boeing.
One big lesson is that it’s counterproductive to squeeze the workforce to the point of demoralization and degradation of quality. Boeing’s culture for quality wasn’t eroded during the terms of one or two CEOs. It started a while back, such as the move of the headquarters from Seattle in 2001 to Chicago, where Boeing doesn’t make aircraft.
Boeing then steamrolled its union in 2009 by setting up a factory in South Carolina, which was outside of the traditional Pacific Northwest production hub and employed nonunion workers. This bold move would have been fine, but the company went a step further and threatened existing union workers with moving more work to South Carolina. Union members succumbed to the pressure and adopted in 2014 a punishing 10-year labor contract that, among other things, eliminated the traditional pension plan.
The company reduced the workforce, including engineers, and then suffered production snarls in 2018. The hyper-focus on cutting costs coincided with the design of a new version of the 737, a plane that first entered service in 1968. Boeing was in catch-up mode because Airbus had a head start on its new version of the A320, which like the Max would be designed for new more fuel-efficient engines built by General Electric and RTX Corp.’s Pratt & Whitney.
The larger engines fit differently under the old airframe, which affected the plane’s flight. The company came up with a software fix to keep the aircraft from pulling up during flight. The seeds of the calamity were planted when Boeing employees tried to hide this change from the FAA because of pressure to reduce the need for pilot training on the new aircraft. Boeing cut corners to save $243.6 million, which the Justice Department said would have been the cost of training pilots on simulators.
The lack of training was a factor in the crashes of Lion Air Flight 610 in October 2018 and of Ethiopian Airlines Flight 302 in March 2019, which together killed 346 people. The zeal to drive down expenses ended up costing Boeing billions of dollars and severely damaged its reputation.
The Justice Department accused Mark Forkner, who was the 737 Max chief technical pilot at the time, of defrauding the FAA over the software fix. Forkner was acquitted of the charges, and cases against other Boeing executives fizzled.
The breakdown of the manufacturing culture, which was exacerbated by a pandemic-crippled supply chain, came into stark relief in January 2024 when a door plug blew off an Alaska Airlines flight soon after takeoff; Boeing workers had left four bolts off a fuselage panel.
After years of cost reductions and corner cutting, Boeing hit bottom in 2024. The company burned through $14.3 billion of cash last year and had to pay up after machinists went on strike for almost two months. Investors didn’t abandon the company because of the value locked up in its backlog and bought new shares to bolster Boeing’s finances.
Those investors are correct. Boeing will soon be cranking out cash along with new planes. The company may reach annual free cash flow of $14 billion by the end of the decade, Olivier Brochet, an analyst with Rothschild & Co. Redburn, said in a June report. After the company whittles down its $53 billion of debt, there will be pressure at some point to restart the dividend. That’s reasonable. But then the drumbeats in favor of share buybacks will begin to sound louder and louder.
The priority should be building the highest-quality aircraft and taking back the market share lost to Airbus. This means Boeing needs to introduce a new, clean-sheet aircraft and push the engine makers to make even greater progress on fuel burn and noise reduction. That’s going to take a lot of cash and should take priority over shareholder returns.
The agreement to drop criminal charges is another step in Boeing’s healing process. It’s also a moment to reflect on what went so terribly wrong and vow not to repeat this behavior, including resuming huge buybacks at the expense of plane development and manufacturing culture. If Boeing takes care of customers and its workers, the cash will eventually flow to investors.
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