So what is next for Boeing and how does this
all impact the stock which is down
35% this year? Joining us now Jeffries Aerospace and defense
analyst Sheila Kayalu.
Sheila, great to have you with us.
I'm. I'm first of all curious what you thought of
what happened with the whistleblower testimony today on on Capitol
Hill and whether or not that adds to sort of
this case that that Senator Blumenthal is putting forth that
there is a culture and repeated pattern of
of just quality issues.
I mean clearly Boeing is struggling,
right? The share price tells you Boeing is struggling.
There's CEO change in place.
There's a search for a CEO.
There's a board overhaul. So there's a lot of things
going on at Boeing that reflect the fact of the
January 5th incident essentially with Alaska Airlines and the safety
culture. You know that when we go back to the
20/18/19 and the two crashes that led to that 2.5
settlement as you mentioned.
So clearly a lot going on at Boeing.
I think the testimony today from the different panels,
it's hard to put it in context.
An employee working on the 787 program later moved to
the 777 program,
says there's issues on the 787 as well in addition
to the
737 Max. Stepping back, the
787 has not had any major incidents.
It has had a relatively decent safety culture and just
let's bear in mind Boeing is producing the 787 at
a current rate of five a month.
That's very different than the pressure to up volume from
you know twenty a month to 40 a month to
50 a month on the
737. So there's a lot less volume pressure
which could stem, you know,
quick fixes on something like the 737 Max.
So in terms of the violation of of the deferred
prosecution agreement
reached with the DOJ, Sheila,
is that on your bingo card,
I mean is, is does that factor in at all
to your outlook for Boeing?
Every everything is on the bingo card when it comes
to Boeing,
there's always something new, You know clearly that wouldn't be
positive they they
if they violated it, but just within the three years
and they do have a safety system in place.
It just apparently too cumbersome for people to
document it, but so they do have one in place.
You know, I think that would just add to
the slew of issues. But regardless I think looking forward
and that's what we have to do is we're going
to have a new CEO come in.
The timing of that is unknown.
I think the first thing that new CEO is going
to do is take out that 10 billion free cash
flow target,
throw it out the door
for 2526 and say we're going to slow production until
we hit certain safety measures and maybe fixes into the
facilities.
I mean, yes, Boeing touches a lot of suppliers.
Yes, each plane has a million parts,
but at the end of the day,
these are two big factories,
one in Menton and one in Charleston that have to
be managed.
And of course Spirit Aerospace Systems,
if they decide to take that in house which is
currently,
you know, in talks with Boeing to be taken out,
just curious if if it is found to have violated
that deferred prosecution agreement,
what do you think that means for the stock?
And then the next step would be if they're found
criminally liable.
I mean I don't know what fines there are.
I don't know if it involves you know,
another agreement at that point
the management will be involved,
prior management will be involved.
How do you sort of play that out?
I I I think it's hard to play it out
in terms of investor sentiment and the share price performance.
Clearly another Ding and a fine would be
very negative for the stock in that you would have
you know, additional debt in place
and their debt balance is already in the $45 billion
range.
So that that wouldn't be positive from that perspective.
But you know Dave Calhoun is leaving not because of
anything he's done.
The former management no longer is at Boeing,
right. And I think what we have to take back
and you know Department of Justice investigations do take a
long time.
Some companies in our coverage have had a decade of
DOJ investigations and who this is tied to on a
criminal basis is very hard to lead it up to
top management. And we've seen plenty of turnover on the
program manager lines,
whether it's the 737 Max or the 87.
So I think as Senator Blumenthal said,
to to pin it to somebody is just going too
far ahead.
And we do see these criminal investigations and these DOJ
investigations last close to decades sometimes.