Why They Still Can't Make Planes

Outgoing Boeing CEO David Calhoun has doubled down on his earlier goal of $10 billion in cash flow.

He's going to focus on this to the exclusion of every other problem, because ……… The aristocrats!

This is so stupid, you would think that this guy learned business at the feet of serial fraudster Jack Welch.

Wait?  He spent almost 3 decades at GE?

Oh, now I get it:

Boeing Co.’s $10 billion cash flow target risks becoming more of an albatross than an aspiration.

The planemaker burned through $3.9 billion of cash in the first quarter and forecast another sizable outflow in the current period as it slows jet deliveries to root out manufacturing sloppiness. The Federal Aviation Administration has given Boeing until the end of May to come up with a plan to fix its “systemic quality-control issues” after a midair blowout on an Alaska Airlines flight at the start of the year. But Boeing doubled down on its goal of generating $10 billion of free cash flow by either 2025 or 2026 and framed sluggish jet deliveries as merely a temporary setback even as executives acknowledged the current situation made the later timeline more plausible.

“Because I believe it. I just do,” Boeing Chief Executive Officer Dave Calhoun told CNBC when asked why he was still backing the $10 billion target. The quality-control cleanup and associated delivery disruptions will set the company back six months, he said, starting from when that Max jet first dumped a panel into a schoolteacher’s backyard in January. It’s nearly May, so in Boeing’s mind, it has just about fixed itself already. “In that two-year window, it will be six months later than whenever it was going to happen,” Calhoun said of the cash flow goal. “I still believe it will happen in that two-year window. And by the way this was never a heroic target.”

………

In its last earnings update in late January, Boeing declined to provide guidance for 2024, saying the focus should be on safety and quality and not financial objectives. “We won't predict timing. We won't get ahead of our regulator. We will go slow to go fast,” Calhoun said at the time. “We will simply focus on every next airplane and ensuring we meet all the standards that we have, all the standards that our regulator has, and that our customers demand.” Framing Boeing’s challenges as short-term problems that can be fixed in six months and defiantly holding onto the $10 billion cash flow goal sends the opposite message.

………

Calhoun worked at GE for nearly three decades, and his refusal to back down from Boeing’s cash flow target is reminiscent of the can-kicking by another GE CEO, Jeff Immelt, on a much maligned pledge to generate $2 in earnings per share in 2018. That forecast looked out of reach by 2016 as plunging crude prices pressured GE’s oil and gas operations and industrial demand more broadly, but Immelt held onto the target anyway, saying the company could make up for the shortfall with cost cuts and share buybacks. The amount of time he spent talking about the target grew exponentially, and so did analysts’ doubts that GE could actually pull it off. Amidst this pursuit of an ultimately arbitrary number, cash flow challenges in GE’s power business festered, as did a giant insurance money pit. Immelt never explicitly pulled the target before he stepped down in 2017. GE ended up missing it by a mile.

There’s a lesson in that saga for Boeing and Calhoun: if a CEO has to constantly defend a financial target, it’s probably not serving the intended purpose.

Immelt might have (totally was) a complete tool, but his problem was that Jack Welch had spent nearly 3 decades before him manipulating the profit numbers.

Unfortunately, a very large proportion members of the C-suite across the have learned self-serving fraud from Jack Welch as a standard business operating procedure.

Fire Calhoun now.