By Abhijith Ganapavaram and Allison Lampert
(Reuters) – Boeing (NYSE:) on Wednesday named aerospace industry veteran Kelly Ortberg as CEO as it looks to turn around the planemaker, which has been beset by legal and regulatory problems after a quarter in which it lost more than $1 billion .
Ortberg will begin the monumental task of restoring confidence among regulators, the industry and the public amid a quality crisis on August 8, and as the company’s finance chief warned, the money would continue to burn.
Boeing is embroiled in a reputation and safety crisis following a Jan. 5 cabin tire blowout of an Alaska Airlines-operated MAX 9 plane with 171 passengers on board.
The aircraft maker posted a loss of $1.4 billion on revenue of $16.9 billion, below the analyst consensus of $17.2 billion, according to LSEG data. It lost $2.90 per share, worse than expected for a loss of $1.97 per share.
Boeing CFO Brian West told analysts on a conference call that he expects cash use to be greater in 2024 than previously thought and that he expects cash burn in the third quarter. The company’s use of free cash flow in the second quarter was $4.33 billion.
Shares of Boeing closed 2% higher at $190.60 on Wednesday, helped by the CEO’s announcement, and despite problems within its business units, including defense and aerospace.
The company’s crisis led to a board reshuffle, with CEO Dave Calhoun deciding to step down by the end of the year and chairman Larry Kellner saying he would not seek re-election.
Calhoun told analysts he did not think Ortberg’s arrival would lead to a major leadership overhaul at Boeing. Stephanie Pope, the head of Boeing Commercial Airplanes, was seen as a possible candidate to succeed Calhoun.
“I suspect he’s going to wrap his arms around Stephanie and the rest of the team in a big way and just try to support their work,” Calhoun told analysts.
Calhoun will serve as a special adviser to the board until March 2025, Boeing Chairman Steve Mollenkopf said Wednesday.
Shortly after the January accident, the U.S. Federal Aviation Administration banned Boeing from increasing production of its cash cow 737 MAX family of aircraft to more than 38 a month, without estimating how long the restriction will last.
West said Boeing has been making planes well below that level for several weeks to close quality gaps, confirming a Reuters report.
Ortberg will now have to help revive production of the 737 jets, from about 25 in June and July to 38 by the end of the year.
WALL STREET CHEERS APPOINTMENT
A mechanical engineer, Ortberg, 64, has more than 30 years of experience in aerospace and defense, including numerous leadership roles.
“There is still a lot of work to be done, and I look forward to getting started,” Ortberg said in a statement when Boeing waived the mandatory retirement age of 65 for him.
Ortberg will receive a long-term incentive award of $17.5 million, according to a filing. He will receive an annual base salary of $1.5 million, an annual incentive payment of $3 million and a cash payment of $1.25 million in December.
His plans to locate in Seattle, near Boeing’s 737 MAX and 777 factories, are “a step in the right direction,” said Jon Holden, local union president for more than 30,000 Boeing workers negotiating a new contract .
Holden said in a statement that Boeing’s new CEO needs the support of the International Association of Machinists and Aerospace Workers union “more than ever.”
After five years leading Rockwell Collins (NYSE:), Ortberg steered the company’s integration with United Technologies (NYSE:) and RTX until his retirement from RTX in 2021.
“This is a strong and safe choice. We imagine Ortberg’s age may be higher than some investors would like. However, we believe Ortberg’s reputation with Rockwell Collins and United Technologies/RTX is strong,” says RBC Capital Markets analyst Ken Herbert. said in a note.
Ortberg’s experience integrating acquisitions, such as guiding Collins through an $8.3 billion deal to buy BE Aerospace in 2016, will be put to the test again at Boeing.
The aircraft maker is working to integrate Spirit AeroSystems (NYSE:) into its business after striking a deal to buy back the fuselage maker earlier this year.
His appointment also responds to industry pressure to hire an outsider to steer Boeing out of trouble. He was chosen over Patrick Shanahan, a former Boeing executive and current CEO of Spirit Aero, who was seen by some analysts and investors as the favorite to succeed Calhoun.
DEFENSIVE FIGHT
During the second quarter, Boeing delivered a total of 92 aircraft, a decline of 32% from last year. It posted a loss of $2.33 per share as troubled defense and aerospace businesses exacerbated financial pressure on the company.
The Defense, Space and Security unit, one of Boeing’s three main business units, lost billions of dollars in 2022 and 2023, which executives attributed to cost overruns on fixed-price contracts.
Such contracts have high margins but leave defense contractors vulnerable to the inflationary pressures that have eroded U.S. corporate profits in recent years.
