It is no secret that US President Donald Trump loves fanfare and superlatives. This is why Air Force One had not one, but two fighter jet escorts during his visit to Saudi Arabia and Qatar. Who can forget how Trump beamed during a military parade that French President Emmanuel Macron threw him in Paris during his first term.
That love of fanfare includes big investment announcements for which Trump is not shy to take credit, such as the US$100 billion commitment in December last year from Japan’s Softbank for US projects and the US$500 billion of artificial intelligence investment pledged in January from joint-venture partners, including OpenAI and Oracle Corp.
So it is of little surprise that Trump was on hand on Wednesday for the announcement of Qatar Airways’ record order of 160 Boeing Co wide-body aircraft plus options for 50 more, the latest example of nations or companies pulling out all the stops to provide Trump with some bragging rights. The White House pegged the value of the deal at US$96 billion, but it would end up being much less after applying typical discounts for big customers.
Boeing’s problems, though, are about increasing production, not winning new orders. The company has a backlog of 5,643 planes it needs to build, with a value of about US$460 billion. Boeing is working hard to increase the production rate of the 737 Max, its most popular plane, to a cap of 38 per month set by the US Federal Aviation Administration (FAA). At that rate, it would take nine years to chew through the 737 backlog of 4,287 aircraft. Boeing expects to ask the FAA to allow it to raise production to 42 per month later this year, but would still need to go higher.
For Trump, those details do not matter as long as it is clear that he is credited with getting a huge deal done. In a photo of the signing, Trump is at the center of the desk with Boeing CEO Kelly Ortberg to his right. Saudi Arabia’s sovereign wealth fund also ordered 30 Boeing single-aisle planes, adding to the haul during Trump’s trip. That comes after the parent of British Airways announced an order for 32 Boeing planes last week.
For Boeing, it is certainly a vote of confidence that large airlines still want to order aircraft amid the fog of a trade war. After all, the planemaker managed only eight orders last month, compared with the three-month average of 71. Firm orders usually come with an initial down payment followed by progress payments, so such a large contract can bolster cash flow. The devil is in the details. Customers might not be willing to pay so much up front because of Boeing’s massive backlog and its well-known struggles to increase production.
Still, it is beneficial for Boeing that 130 of the Qatar orders are for the 787, Boeing’s newest wide-body aircraft that’s currently flying. Right now, Boeing has 759 unfilled orders for this plane not counting the Qatar announcement. The company is currently making five per month, which means it would take almost 13 years to deliver those planes. Production of the 787 is about to increase to seven a month, the company said last month, but it needs to go much higher.
The good news for Boeing investors and its airline customers is that Ortberg’s plan for fixing Boeing’s production problems seems to be working, but it would take time to increase output while instilling a new work culture. The company got into trouble when the 737 Max was grounded after two fatal accidents in 2018 and 2019, and during the COVID-19 pandemic, when the aerospace supply chain broke down after thousands of experienced workers left the business during the temporary lull of flying demand.
The lack of parts and substandard quality caused massive disruption to the normal flow of aircraft down the assembly line. Boeing ended up with out-of-sequence work that hurt quality and forced the company to create so-called shadow factories to work on incomplete planes. The chaos at the factories manifested itself in January last year, when a door plug on a new 737 blew out during an Alaska Airlines flight, which luckily did not result in any deaths. An investigation showed that workers had left the bolts off the door plug. The FAA was forced to step in to oversee production and devise a plan to improve quality. Boeing’s CEO at the time, Dave Calhoun, eventually stepped down.
To add to Boeing’s woes, workers in the Seattle area went on strike at the end of last year, shutting down production for almost two months. Ortberg, who was hired in August, astutely took advantage of this shutdown to eliminate the out-of-sequence work, close the shadow factories and introduce a new culture of quality on the factory floor that workers have embraced.
The production mess caused Boeing to burn through US$14 billion of cash last year, despite the huge backlog of orders. The cash losses have continued this year, but are expected to turn around in the back half of this year as production picks up.
Large plane orders and the eye-popping dollar values might grab headlines and stroke the president’s ego, but it is the grunt work of boosting monthly aircraft production where Boeing will be in the money.
Thomas Black is a Bloomberg Opinion columnist writing about the industrial and transportation sectors. He was previously a Bloomberg News reporter covering logistics, manufacturing and private aviation. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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