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Boeing has announced Kelly Ortberg, a seasoned aerospace executive, as its new CEO to steer the company's turnaround efforts. Ortberg's extensive industry experience is expected to play a crucial role in revitalizing Boeing's operations and guiding strategic growth initiatives. This leadership change aims to address current challenges and position Boeing for future success in the competitive aerospace sector.
Boeing (BA.N) announced on Wednesday that aerospace industry veteran Kelly Ortberg has been named as its new CEO to lead the company's turnaround amid legal and regulatory challenges following a quarter in which it lost over $1 billion.
Ortberg will begin his role on August 8, facing the significant challenge of rebuilding trust with regulators, the industry, and the public during a quality crisis, as the company's finance chief warned of continued cash burn. Boeing has faced a reputational and safety crisis following a January 5 mid-air cabin panel blowout on an Alaska Airlines (ALK.N)-operated MAX 9 jet carrying 171 passengers. The company reported a loss of $1.4 billion on revenue of $16.9 billion, falling short of analysts' expectations of $17.2 billion, according to LSEG data. It reported a loss of $2.90 per share, worse than the anticipated loss of $1.97 per share.
Boeing CFO Brian West informed analysts that cash use in 2024 is expected to be higher than previously anticipated, with cash burn projected for the third quarter. The company's second-quarter free cash flow use was $4.33 billion. Boeing shares closed 2% higher at $190.60 on Wednesday, boosted by the CEO announcement despite ongoing struggles across its business sectors, including defense and space.
The crisis prompted an executive reshuffle, with CEO Dave Calhoun deciding to step down by the end of the year and board chair Larry Kellner announcing he would not seek reelection. Calhoun told analysts he did not anticipate a significant leadership overhaul with Ortberg's arrival. Stephanie Pope, head of Boeing Commercial Airplanes, was considered a potential successor to Calhoun.
"My guess is he's going to support Stephanie and the team significantly," Calhoun said to analysts. Calhoun will serve as a special adviser to the board until March 2025, according to Boeing Chair Steve Mollenkopf. Following the January incident, the U.S. Federal Aviation Administration restricted Boeing from increasing the production of its 737 MAX jets above 38 per month, without specifying the duration of this limitation.
West confirmed that Boeing had been producing aircraft well below this level to address quality issues, as reported by Reuters. Ortberg will be tasked with increasing 737 jet production from about 25 in June and July to 38 by the end of the year. Kelly Ortberg, in an undated photo via Boeing A mechanical engineer, Ortberg, 64, has over 30 years of experience in aerospace and defense, including numerous executive roles.
“There is much work to be done, and I’m eager to get started,” Ortberg said in a statement as Boeing waived its mandatory retirement age of 65 for him. Ortberg will receive a long-term incentive award targeted at $17.5 million, an annual base salary of $1.5 million, an annual incentive award target of $3 million, and a $1.25 million cash payment in December. His plans to be based in Seattle, near Boeing's 737 MAX and 777 factories, "is a step in the right direction," said Jon Holden, union local president for over 30,000 Boeing workers who are negotiating a new contract.
Holden stated that Boeing's incoming CEO needs the support of the International Association of Machinists and Aerospace Workers union "more than ever." After five years leading Rockwell Collins, Ortberg managed the company's integration with United Technologies and RTX (RTX.N) until his retirement from RTX in 2021.
“This is a strong and safe pick. While Ortberg’s age might be higher than some investors preferred, his reputation at Rockwell Collins and United Technologies/RTX is strong,” RBC Capital Markets analyst Ken Herbert said in a note. Ortberg’s experience in integrating acquisitions, such as steering Collins through an $8.3 billion deal to acquire BE Aerospace in 2016, will be tested again at Boeing.
The planemaker is working to integrate Spirit AeroSystems (SPR.N) after clinching a deal earlier this year to reacquire the fuselage maker. His appointment also fulfills an industry call for hiring an outsider to guide Boeing out of its difficulties. He was chosen over Patrick Shanahan, a former Boeing executive and current CEO of Spirit Aero, who was seen as a favorite to succeed Calhoun by some analysts and investors.
DEFENSE BUSINESS STRUGGLES In the second quarter, Boeing delivered 92 aircraft, a 32% decrease from last year. It posted a loss of $2.33 per share, as its troubled defense and space business added to the company's financial strain. The Defense, Space, and Security unit, one of Boeing's three main divisions, lost billions in 2022 and 2023 due to cost overruns on fixed-price contracts. These contracts, while offering high margins, expose defense contractors to inflationary pressures that have impacted U.S. corporate earnings in recent years.
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Source: Reuters
