Saturday, November 22, 2014

Boeing’s Crisis Spreads Beyond MAX: Troubled Starliner space launch and new tensions with airlines and suppliers hit aerospace giant

Boeing Company botched the first demonstration flight of a long-awaited space capsule and said it would suspend taking major 737 MAX parts from its biggest supplier, setbacks that pushed the aerospace giant deeper into crisis Friday.

The prolonged grounding of the MAX fleet and Boeing’s decision days earlier to suspend production of the jetliners were already weighing heavily on the company and Chief Executive Dennis Muilenburg.

The high-profile failure of the Starliner on Friday to reach the correct orbit under its own power—scuttling the capsule’s planned docking with the international space station—was a fresh blow to Boeing as well as to U.S. efforts to return astronauts to space using a domestic vehicle. No one was aboard the spacecraft.

Following a flawless predawn launch of the Starliner from Florida by a Russian-powered Atlas V rocket, officials from the National Aeronautics and Space Administration and Boeing told reporters at a hastily convened press conference that a software or automation problem with the capsule stranded it in the wrong orbit without adequate fuel to rendezvous with the space station.

The mistake, stemming from a basic error in setting an internal clock on the spacecraft, raised new questions about Boeing’s technical and management prowess. The problems with the 737 MAX have been linked to flawed design work.

Mr. Muilenburg has faced calls from some lawmakers and victims’ families to step down over his handling of work to fix flight-control flaws and get the MAX flying again after two fatal crashes that took 346 lives.

A company spokesman said Friday that Boeing’s chairman, Dave Calhoun, stands behind his comments in early November on CNBC that the board of directors has confidence in Mr. Muilenburg.

But the Starliner’s problems suggest the woes of Boeing’s commercial-jet business could undermine broader strategic goals. The Chicago company’s defense, space and services units are crucial to bolstering a balance sheet weakened by the MAX grounding and suspension of deliveries, which prompted S&P Global Ratings and Moody’s Investors Service to downgrade Boeing’s credit rating this week.

Mr. Muilenburg, who was in Florida on launch day, ran the company’s defense and space business until 2013. He has been vocal about the company’s ambitious plans for the sector, telling associates over the years that civil space initiatives had long-term strategic and public relations significance beyond anticipated financial returns.

The focus on returning the MAX to service has consumed management’s time as well as the company’s capital, making it tougher to sell new planes and disrupting Boeing’s broader jetliner strategy, which includes plans for a new midsize aircraft.

The latest setbacks, coupled with United Airlines Holdings Inc. ’s announcement Friday that it removed the MAX from its schedules until June 4, highlighted the daunting crisis facing Boeing leaders

No large shareholders have joined in the public calls for Mr. Muilenburg to step down. Though Boeing shares have traded in a narrow range for much of the time since the MAX’s grounding in March, the stock dropped 10% this month as the aircraft’s expected return to service was pushed back, portending less cash flow from customers. The recent halt to MAX production is expected to raise costs and put more stress on Boeing’s 150,000-strong workforce and the global aerospace supply chain.

Boeing this past week said it planned to suspend MAX production in January after amassing around 400 undelivered jets, now stored around the country. The move follows criticism from regulators that Boeing was overly optimistic in its expectations for the MAX to be recertified for commercial flight.

President Donald Trump called Mr. Muilenburg last weekend to discuss the production halt, according to people briefed on the conversation. The president asked about the duration of the shutdown, one of these people said.

Boeing hasn’t said how long the suspension might last and said it doesn’t anticipate layoffs or furloughs. Around 12,000 staff assemble the plane at a plant near Seattle.

Boeing originally planned to have delivered about 1,000 of the planes to airlines and lessors by June next year, which would represent some 5% of the global airliner fleet. Carriers have been forced to cancel thousands of flights and hang on to older planes since the MAX’s grounding following a second fatal crash in five months.

Boeing has set aside an initial $6.1 billion for customer compensation. It has also booked $3.6 billion in charges to cover the slowdown in MAX production. Analysts think both numbers could double when Boeing announces its fourth-quarter earnings on Jan. 29.

Rival Airbus SE has snagged orders with its A321neo, which is larger and flies further than the MAX. United this month ordered 50 of the A321neo, the first Airbus order by the carrier since 2002.

Spirit AeroSystems Holdings Inc., the largest MAX supplier, said Boeing told it to stop making fuselages for the plane from Jan. 1 at its plant in Wichita, Kan. Spirit has kept making 52 fuselages a month even after Boeing reduced its MAX output in April to 42.

Spirit relies on the MAX for half of its revenue, and the enforced shutdown of its three MAX lines is expected by analysts to ripple through a network of 600 main suppliers for the plane—and through the broader economy. Boeing is the largest U.S. exporter.

Most suppliers have said they would rather maintain some production to make it easier to ramp up again and retain staff in a tight labor market for aerospace engineers and mechanics.

The sole supplier of engines for the MAX, the CFM International joint venture between General Electric Co. and Safran SA, plans to shift resources to make more for a rival Airbus jet, according to people familiar with the situation.

The Starliner’s orbital failure hit Boeing particularly hard because prior to the launch some inside and outside the company had seen the mission as a chance to demonstrate an ability, albeit belated, to deliver on pledges to NASA. The uncrewed test flight occurred more than three years later than initially envisioned.

NASA officials said if astronauts had been on board the capsule they would have been safe despite the thruster misfires. Nicole Mann, one of two NASA astronauts slated to fly the first crewed Starliner mission, reiterated the importance of maintaining manual-control alternatives. “We have the capability on board to stop the automation and take over manually to fly,” she told reporters.

Before Friday’s events, Boeing had signaled it hoped to transport the first crew to the space station by summer. Now that timetable is under review, with Jim Chilton, senior vice president of Boeing’s space and launch businesses, indicating that engineers will seek out the cause of the problem.

NASA chief Jim Bridenstine told reporters it was premature to comment on whether another uncrewed demonstration flight would be required before astronauts belt into a Starliner capsule.

Mr. Muilenburg has touted that the first astronaut to land on Mars would likely travel on a Boeing-made rocket. “I think this is the most exciting time in our country’s space program in decades,” he said in a speech last year. “We’re working on things now that are bigger than the Apollo program.”

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