New Boeing CEO Kelly Ortberg Faces Challenges in Reviving the Aerospace Giant

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Kelly Ortberg, Boeing’s incoming CEO, is stepping into a challenging role as he prepares to lead the 108-year-old U.S. aerospace giant through turbulent times. The former CEO of Rockwell Collins is coming out of retirement to tackle the task of restoring Boeing’s position as a leading force in the aviation industry. This task comes amid a backdrop of financial difficulties and a series of operational crises that have plagued the company in recent years. Ortberg’s extensive list of priorities includes mending relationships with airlines and employees, increasing production output, stabilizing the company’s finances, and securing a labor agreement to prevent a potential worker strike later this year.

Industry insiders, including current and former airline executives, have expressed optimism about Ortberg’s appointment due to his expertise in aerospace and engineering. His outsider status is seen as an advantage, as it distances him from Boeing’s troubled past. However, the challenges facing Ortberg are substantial. Bill George, former CEO of Medtronic and executive fellow at Harvard Business School, emphasized the long-term nature of the task, stating, “This is not a five-year fix. Is he prepared to spend the 10 years it’s going to take to restore Boeing?”

Ortberg, who was not available for an interview, expressed his commitment in a statement, saying, “There is much work to be done, and I’m looking forward to getting started.” Boeing has previously announced comprehensive measures to enhance quality and rebuild confidence, including efforts to reduce the backlog of pending work. 

One of Boeing’s most urgent issues is the decline in jet production and deliveries following a January 5 incident where a panel blew off a nearly new 737 MAX mid-flight. The company is currently producing around 25 MAX jets per month, with a goal of increasing production to 38 per month by the end of the year. This slowdown has left airlines scrambling for aircraft amid a surge in travel demand, impacting their revenues and resulting in overstaffing. Southwest Airlines, which operates an all-Boeing fleet, had anticipated receiving 85 jets this year but now expects to receive only 20.

Oscar Munoz, former CEO of United Airlines, emphasized the importance of Ortberg establishing trust with executives, key customers, and Boeing employees. “Reaching out to key customers and Boeing employees and letting them know that they have a leader they can trust and work with will be key,” Munoz told Reuters.

Boeing is also grappling with industry-wide supply chain issues and the threat of labor disruptions in September. More than 30,000 factory workers in the Seattle area are currently engaged in contract negotiations. Both Boeing and the International Association of Machinists and Aerospace Workers have reported progress on non-economic issues, with discussions on critical economic matters set to begin soon.

The company urgently needs to increase production to address its cash burn, which is expected to continue at least through the third quarter. Rating agency S&P has indicated that it may downgrade Boeing’s credit rating to junk status if the company fails to make progress towards normalizing production levels. Such a downgrade would increase Boeing’s borrowing costs. The company is currently incurring expenses for parts and components that are not being utilized in aircraft assembly.

Tony Bancroft, a portfolio manager at Gabelli Funds, which holds Boeing shares, noted, “There’s a lot of operating leverage in this business, and with production rates currently below optimal capacity, it’s just going to burn cash.”

Ortberg’s decision to be based in Seattle, where Boeing conducts most of its commercial jet manufacturing, has been well-received by the machinists’ union and others, despite the company’s headquarters being in Washington, D.C. 

Additionally, Ortberg will need to meet with the families of the 346 victims of the two 737 MAX crashes that occurred in 2018 and 2019. The U.S. Department of Justice and Boeing have reached an agreement in which the company will plead guilty to a criminal fraud conspiracy charge and pay up to $487 million after violating a 2021 deferred prosecution agreement. A U.S. judge must approve the deal, which would require board members to meet with family members.

Looking ahead, once Boeing stabilizes its current operations, the company will need to focus on developing a new commercial jet to expand its aging product line. The 737 MAX, the latest variant of the 737 jet, first entered service in 1968, highlighting the need for innovation and renewal in Boeing’s offerings.