By Boeing faces numerous challenges, including the need to enhance quality, production efficiency, profitability, and most importantly, repair its reputation. To tackle all of these issues effectively, one crucial step that the company can take is the elimination of its infamous “shadow factories.” These facilities are where Boeing reworks its 737 MAX and 787 jets prior to final delivery.
In recent months, Boeing has acknowledged its shadow factories and has expressed the intention to wind them down. This move is expected to result in significant cost reductions and help Boeing put an end to its lingering problems.
The worldwide grounding of the 737 MAX from March 2019 to November 2020, following two tragic crashes within a span of five months, left Boeing with a fleet of grounded jets. These jets had to be stored during the grounding period and now require extensive reworking, upgrades, and thorough checks before they can be delivered to customers. This essential process takes place within the confines of Boeing’s shadow factories.
The rework process undoubtedly adds significant costs to Boeing’s operations. Though Chief Financial Officer Brian West did not provide a specific cost estimate during Boeing’s fourth-quarter conference call on Wednesday, CEO Dave Calhoun stated that “we put more hours into those airplanes in our shadow factories than we do to produce them in the first place…that’s a metric I know everybody understands.”
Boeing’s decision to phase out its shadow factories is a clear indication of its commitment to improving efficiency, reducing expenses, and ultimately enhancing its standing within the industry. By addressing such critical issues head-on, Boeing aims to reassure customers, rebuild trust, and emerge stronger than ever before.
Boeing’s Inventory and Profit Margins
At the end of 2023, Boeing had approximately 140 737 MAX-8 aircraft in inventory, all manufactured before 2023. A significant portion of these, around 85 aircraft, were specifically designated for Chinese customers. It is worth noting that China has recently resumed accepting deliveries of MAX jets after a period of suspension.
Additionally, Boeing had about 50 787 jets by the end of 2023. These aircraft still require rework, but the company anticipates completing this process by the end of 2024.
According to FactSet, Wall Street expects to witness a gradual improvement in Boeing’s commercial-aerospace profit margins. They predict a rise from a negative 5% margin in 2023 to 3% in 2024 and finally reaching 8% in 2025. However, industry analysts do not foresee margins returning to their 2018 levels for quite some time. Nevertheless, the elimination of shadow factories has the potential to surpass these estimates.
Despite reporting a fourth-quarter loss, Boeing’s stock experienced a notable surge of 5.3% on Wednesday, which exceeded the expectations of various Wall Street analysts. This positive momentum comes after a sluggish start to the year for Boeing’s stock, as it has endured a decline of approximately 19% year to date. Most of this decline can be attributed to the blowout incident involving an emergency door plug on a 737 MAX 9 aircraft operated by Alaska Air Group.
S&P 500 and Nasdaq Composite futures showed an increase of 0.4% and 0.6% respectively during premarket trading on Thursday. On the same day, Boeing’s stock also demonstrated a modest rise of 1.4%.
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