Boeing is leaving, and its CEO has already left

Since the second-quarter results were released last week, the stock Boeing (BA -0.57%) They’ve lost $25 in value — a stock market decline of more than 13% — as of this writing. But that shouldn’t be a huge surprise.

Boeing’s earnings were truly terrible. Bad enough to cost Boeing’s CEO his job.

Boeing in numbers

Boeing “missed earnings” by a wide margin last week. On the top line, revenue came in more than $300 million short of expectations, or $16.9 billion. On the bottom line, the company reported a net loss of $2.33 per share. The company’s cash flow statement showed cash burn of $4.3 billion in the quarter.

To put those numbers in historical perspective, sales fell 15% year over year, while losses rose 832%. Free cash flow, which had been positive in Q2 last year, turned negative. Cash burn, which was also negative in Q1, accelerated in the second quarter. Boeing has burned through more than $8.2 billion in total this year, reducing cash reserves to $12.6 billion compared with debt of $57.9 billion.

What’s going wrong at Boeing

Management blamed the declines primarily on two factors, citing “lower commercial deliveries and losses on fixed-price defense programs.” Commercial airplane deliveries totaled just 92 units in the quarter, down 32% from the prior quarter, resulting in a 32% drop in revenue at Boeing’s (once) largest business. Sales fell just 2% at the company’s defense, space and security unit.

Operating losses at both businesses rose sharply: 87% for Commercial Airplanes and 73% for Boeing Defense, Space, and Security (BDS), while operating profit margins at both units deteriorated.

Only Boeing’s global services unit showed any improvement from last year, and even there it was minimal. Revenue was up 3%, operating margins were up just 2% and profit margins were down.

Help Wanted: Boeing’s New CEO

Despite all the evidence above that all is not well at Boeing, CEO Dave Calhoun insisted that the company is “making significant progress in strengthening our quality management system and positioning our company for the future.” But he won’t be around to see them.

Just minutes after the earnings report, Boeing announced that Calhoun would be leaving Boeing after less than four years at the helm. The change was planned, since Calhoun announced in October that he would leave once the company found a new CEO.

On August 8, a former Rockwell Collins employee and RTX Chief Executive Officer Robert K. “Kelly” Ortberg will take over as CEO and attempt to fix what Calhoun failed to fix.

He will have a lot of work.

What needs to be fixed at Boeing

As is well known, Boeing has a lot of problems that need to be addressed, starting with chronic quality control issues in its commercial aircraft division (plane doors falling off and the like).

The company also faces pressure from the Pentagon to shift more risk to its contractors, management acknowledged, by insisting on fixed-price contracts in defense contracts. That shift has already cost Boeing billions of dollars in write-offs, including on an Air Force tanker contract that Boeing won with a fixed-price bid, making Boeing nervous about entering into more such fixed-price contracts in the future. The problem is that if Boeing I refuse sign fixed-price contracts, it could start losing defense contracts to competitors who will be sign them. That could cost Boeing not only future revenues — but profits as well.

Scan a little higher, and you’ll also find problems with Boeing’s space business (which is a small but not insignificant part of BDS). Specifically, the Starliner crew transporter — the spacecraft Boeing depends on to fulfill its multibillion-dollar commercial crew transport contract with NASA — is currently docked at the International Space Station, where it’s been stuck for the past two months. More than two weeks past its expiration date, Boeing and NASA are still considering whether it’s safe to use the Starliner to bring a two-person crew of astronauts back to Earth. If they ultimately decide that it is NO safe, NASA will likely have to use the SpaceX Crew Dragon spacecraft to rescue the astronauts.

Such an ignominious end to Boeing’s ISS mission could put the final nail in the Starliner coffin and convince Boeing to abandon the manned spacecraft project altogether, resulting in billions of dollars in write-offs for BDS—and even billions of dollars more in losses for Boeing itself.

What does this mean for investors?

As a $100 billion blue chip, you wouldn’t expect a company like Boeing to be a risky bet. But the days when investing in Boeing could be considered “safe” are over. Boeing hasn’t even been able to afford a dividend since 2020. And why not? Boeing hasn’t been profitable since 2018, according to data from S&P Global Market Intelligence.

Boeing today is a turnaround play, pure and simple. And investing in Boeing is essentially a bet that new CEO Kelly Ortberg can fix what his predecessors broke.