(Bloomberg) -- Boeing Co.’s quick-fire cadence of deals with US prosecutors and a key supplier sharpens the attention of its board and investors on the next big task ahead: finding a new chief executive officer to lead the planemaker out of its rut.
Within a week, Boeing secured late-night pacts to buy back most of Spirit AeroSystems Holdings Inc. and agreed to plead guilty to a single conspiracy charge by US prosecutors stemming from two 737 Max crashes in 2018 and 2019. Although plenty remains unresolved on both fronts and major risks still loom, the moves provide much-needed clarity for whomever is tapped to take over from current CEO Dave Calhoun, who plans to step down by year-end.
The Spirit acquisition and agreement in principle with the US Justice Department are “important milestones toward providing a clean set-up for a new CEO,” RBC Capital Markets analyst Ken Herbert said in a note to clients. The company’s plea agreement was largely expected by investors and likely will have “limited financial impact,” he said.
Pleading guilty will allow Boeing to avoid a drawn-out legal battle, Bloomberg Intelligence analyst George Ferguson said. With the deal, Boeing can “clear the decks and focus on the other issues that they need to resolve in order to go back to generating cash and deliver on a recovery in the second half of the year,” he said.
To be sure, the list of challenges that Calhoun and his successor must still face is long. Getting the operations at Spirit, by far Boeing’s most important supplier, back in shape will require diligent execution at a time when Boeing’s own factories are struggling and its finances are strained. The plea agreement, if blessed by the court, will place Boeing under probation and close supervision by an external monitor for years to come.
The relatives of the crash victims and their attorneys say the deal doesn’t go far enough to hold Boeing accountable and plan to object. One of those lawyers, Erin Applebaum, said Monday that even a provision stipulating the government, not Boeing, will select the monitor is problematic because the company will still be able to offer feedback on the process.
It could also risk complicating Boeing’s huge defense, space and security business, which accounted for about 32% of the planemaker’s total revenue last year. Boeing is a major defense contractor and builder of presidential aircraft. The company is in talks with the US Defense Department on a potential path forward, a person familiar with the matter said.
Boeing has said it would likely burn through about $8 billion in cash in the first half of the year, owing largely to depressed production and delivery rates of new aircraft, including the all-important 737 Max.
Investors will get another taste of Boeing’s challenges when the company unveils its monthly orders and deliveries on Tuesday. Analysts at Jefferies expect Boeing to say it delivered 42 planes in June including 34 of its 737 Max jet. While that’s an increase over the 24 handovers in May, Jefferies estimates second-quarter deliveries will total just 90 planes, down from 136 in the same period last year.
Boosting production rates, re-integrating Spirit and fulfilling its obligations to the Justice Department will all fall to Boeing’s next CEO. Led by Chairman Steve Mollenkopf, Boeing’s board is searching for Calhoun’s successor, though no clear favorite has emerged.
One possible candidate, General Electric Co. CEO Larry Culp, last week extended his contract leading the world’s largest jet-engine maker, effectively taking him out of the running. Other potential suitors include Spirit AeroSystems CEO Pat Shanahan, who is working to close the deal with Boeing, including finalizing complex agreements to offload factories to Airbus SE.
--With assistance from Julie Johnsson.
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