Vaibhav Munjal, Gabriel Veilleux, Louis-Philippe Gagnon,
Boeing, one of the world’s leading aerospace companies and once seen as the face of American engineering, has been under recent scrutiny after one of the planes it manufactured for Alaska Airlines suffered from a detached door panel mid-flight caused by four missing key bolts on the door plug. The hole it created on the left side of the plane resulted in a considerable loss of pressure in the cabin and risked the lives of the 171 passengers on board. Luckily, seats adjacent from the missing panel were empty, and because the plane was still at low altitude, the passengers still had their seatbelts on. Otherwise, passengers could have been sucked out of the plane. Boeing now faces federal probes and criminal investigations.
Boeing’s acting CEO at the time of the incident, David Calhoun, assumed his role in 2020 amidst a period of turmoil, having previously served as head of the board. His appointment followed the dismissal of former CEO Dennis Muilenburg over the mishandling of two fatal 737 Max crashes, which claimed 316 lives. Upon taking the helm, Calhoun pledged to prioritize safety and engineering improvements, leading to a 20-month grounding of hundreds of planes in 2018. However, the COVID-19 pandemic brought travel and production to a standstill. With the resurgence of travel in 2022, Boeing struggled to meet the surging demand, ramping up production and hiring thousands of new employees. Faced with stiff competition from Airbus, Calhoun set ambitious financial targets dependent on increased output, inadvertently promoting a compromise on quality standards. Despite promising to deliver approximately 450,000 planes in 2023, only 271 were produced by August, causing airlines to express frustration over having to adjust their schedules. The pressure mounted for the aerospace giant. In a bid to maintain momentum, Boeing continued to accept defective components from Spirit Aerosystems, its key supplier, including for Line 8789, the 737 Max jet involved in the mid-flight panel loss incident. This practice allowed for the progression of unfinished tasks and components through its factory, leading to overlapping work and out-of-sequence production, thereby elevating the risk of errors.
(Here’s how doors are usually secured)
Upon arrival at Boeing’s Renton factory, Line 8789 was already exhibiting damage around the door that would later detach mid-flight. Boeing requested new rivets from Spirit Aerosystems, but their delivery was delayed. During this period, production workers removed the door plug’s bolts to facilitate rivet access. However, the SAT log, which monitors production progress, failed to record the reinstallation of the plugs after the rivet was replaced. Eighteen days following the plane's arrival in Renton, on September 19, the rivet was finally installed, with no subsequent record of plug reinstallation.
Following the incident, Calhoun announced his decision to step down from the role of CEO of Boeing by the end of the year. Larry Kellner, chairman of the board, and Stan Deal, CEO of the commercial airplane unit, are out, effective immediately. Steve Mollenkopf, a former Boeing director since 2020 and ex-CEO of Qualcomm will be taking Larry’s seat as chairman. He’ll be the one leading the search for the new CEO. Stephanie Pope, who recently got promoted to COO, is reported to be a strong candidate for the role, as Calhoun vouched for her in the leadership transition he favoured. Those leadership changes are well received by airline managers. As Boeing is a giant in the industry and supplies a big portion of the planes used by most airlines, the latter needs Boeing to be in a status that favors growth : “I, and I know other CEOs, have told Boeing, get the issues understood and get the issues fixed,” Southwest CEO Bob Jordan said during an investor conference earlier this month. “Stop, take the time, understand what’s going on, fix the culture, whatever is at work here. But fix this, because we all need Boeing to be stronger, two years from now, five years from now, 10 years from now.”
Since Boeing’s creation during World War II, its core values are safety, quality, and integrity. As we talked in detail earlier, the door’s malfunction had an impact on their reputation on different levels. First, Boeing’s stock price has plummeted by more than 46%, decreasing as weeks come. Investors started to lose hope in Boeing because of their repetitive errors and inactivity regarding these errors. Boeing had to make a change to avoid a general panic among their shareholders with a management shake-up. They will need to refocus their attention on quality over quantity and rebuild the confidence they had before with their customers. Second, many airline customers refused to fly with Boeing’s planes. It could have an impact on their revenues in the long run with more planes grounded and an increase in their backlog. Finally, their long-term objective is to have only one pilot per plane to reduce costs. With these past events where both pilots were involved in the emergency, they would need to review their objectives to be able to transport safely their passengers from point A to point B.
With Calhoun’s impending departure at the end of 2024 and significant organizational restructuring underway, questions linger about whether these changes will herald a new chapter for Boeing or mark the decline of an aerospace titan. Only time will reveal the outcome.
Equity Research Team