Boeing appoints Kelly Ortberg, aerospace industry veteran, as CEO to lead turnaround

Boeing (BA.N) announced Wednesday the appointment of Kelly Ortberg, a seasoned aerospace industry leader, as its new president and CEO, following an exhaustive months-long search. Ortberg, a former Rockwell Collins executive, will take on the challenging role of turning around the beleaguered aircraft manufacturer.

Ortberg, 64, will begin his term Aug. 8, facing numerous challenges, including reviving aircraft production and restoring trust with regulators, industry and the public. Boeing shares rose 2.9% before the market opened in response to the news.

Boeing, one of the world's top two aircraft manufacturers, has been in crisis following an incident on January 5, when a panel exploded mid-flight on a MAX 9 aircraft operated by Alaska Airlines, carrying 171 passengers. This accident, adding to previous incidents in 2018 and 2019, resulted in a $1.4 billion loss in the second quarter and continued cash burn.

The accident led to the resignation of CEO Dave Calhoun and the departure of the previous chairman of the board. It also led regulators to question the company's safety culture. The U.S. Federal Aviation Administration (FAA) banned Boeing from ramping up production of its lucrative 737 MAX family of aircraft until further notice.

The regulator limited production to 38 airplanes per month, although Boeing has reportedly produced fewer airplanes for some weeks. In February, the FAA gave Boeing 90 days to submit a comprehensive plan to address "systemic quality control issues," which was delivered in May. However, the FAA has indicated that Boeing will not be able to increase production of the 737 MAX immediately.

Analysts applaud appointment

"During his leadership at Collins, Ortberg was well-liked by employees and his direct subordinates, as well as being an affable person," Jefferies analysts commented in a recent note. They also described him as a "tough negotiator" who handled a wide variety of customers and suppliers.

A mechanical engineer with more than 30 years of experience in the aerospace and defense industry, Ortberg has held numerous executive roles. After five years leading Rockwell Collins, he led the company's integration with United Technologies and RTX until his retirement in 2021. Ortberg was chosen over Patrick Shanahan, former CEO of Spirit Aero, who was also considered a strong candidate.

"There is a lot of work to be done, and I'm eager to get started," Ortberg said in a statement.

Challenges in the defense business

In the second quarter, Boeing delivered 92 aircraft, down 32% from a year earlier, and posted a loss of $2.33 per share. Problems in its defense and space business have exacerbated financial pressure on the company.

Boeing's Defense, Space and Security unit, one of the company's three main divisions, has posted losses of billions of dollars in 2023 and 2022 due to cost overruns on fixed-price contracts. These contracts, while highly profitable, leave defense contractors vulnerable to inflationary pressures that have affected corporate profits in the U.S. in recent years.

Boeing used to bid aggressively for these contracts before the pandemic, but has now decided to walk away from them to cut losses, which amounted to $1.76 billion last year. Ahead of the Farnborough Air Show, the unit's chief warned that the quarter had been "significantly challenging."

Boeing CFO Brian West indicated in May that the company will continue to burn cash in 2024, hurt by lower aircraft deliveries compared to last year.

Collaboration: Grupo Auge | Reuters (International).