Aerospace analysts are guardedly hopeful about Boeing's path forward

By Dan Catchpole

SEATTLE - CEO Kelly Ortberg took over at Boeing knowing that the company was in trouble. Those troubles added up to an $11.8 billion loss last year, the company reported on Tuesday.

However, during its earnings call and interviews with Reuters and other news outlets, Ortberg indicated the worst is behind Boeing. He said its commercial airplane division is fixing lingering production problems and expects to ramp up production of its most popular jet, the 737 MAX, to 38 per month later this year, with further increases to follow, pending federal regulators' approval.

A hopeful "show-me" was the reaction from half a dozen industry analysts. 

There are reasons for optimism, said Gautam Khanna, an aerospace analyst with TD Cowen. Since Ortberg took the reins in early August, Boeing appears to be taking a more deliberate approach to solving production problems by slowing down now in order to avoid getting derailed when output speeds up later.

As of Tuesday, Boeing had delivered 33 737 MAX jets in January, company CFO Brian West said on the earnings call. That was well above its pace in prior months. 

Boeing's stock is up 2.8% since Ortberg started on Aug. 8. It jumped after Boeing released earnings results, but gave back some gains on Wednesday.

Even if Ortberg delivers on the goals he laid out, Khanna said, whatever he says now is haunted by his predecessors' bullish assurances that proved hollow: James McNerney on 787 delays and cost overruns; Dennis Muilenburg and the 737 MAX crashes; and David Calhoun on supply chain and production quality problems. 

"Everyone's scarred from the history," he said. 

SKEPTICAL SUPPLIERS

Suppliers, especially, have been hurt by investing for rate increases that did not come through. Many are wary of investing now and ending up financially vulnerable. 

“A lot of people are holding on to their funds,” Independent Forge president Andrew Flores said. The company in Orange County, California, supplies aluminum parts for the 737 MAX. 

“I see light at the end of the tunnel, but it’s a long tunnel," he said. 

For the business to improve, suppliers need to trust that Boeing will make good on ramping up production and invest in capacity.

"The guys in the middle want to trust (Ortberg), because if Boeing improves, their business improves," said Phil Gibbs, an analyst with KeyBanc Capital Markets. 

A problem for Ortberg: at the moment, suppliers are making their own decisions, the head of a Boeing supplier said. He spoke on the condition of anonymity out of concern of retribution. 

After a 53-day strike shut down almost all Boeing airplane production last year, "it's easy to be optimistic in a relative sense: The strike is over and production is ramping up," said Richard Aboulafia, an analyst with AeroDynamic Advisory.

However, increasing production "is not the same as returning the company to a positive strategic direction," Aboulafia said. He pointed to management-employee relations during Ortberg's brief tenure.  

Boeing endured "a 53-day strike that should have been settled in 53 hours," and Boeing engineers' union is investigating allegations that the company is using the reductions to move work to non-union areas, Aboulafia said. 

Ultimately, "the path (to increase jetliner production) is there, and the market is with them," Aboulafia said. "The market wants its jets."

(Reporting by Dan Catchpole, Editing by Nick Zieminski)