By Julie Johnsson, Jinshan Hong and Danny Lee / Bloomberg
For members of the Boeing Co.’s executive council, catching a ride on the company’s corporate jets has long been a cherished perk of the job.
The 19 senior leaders have counted on five company-owned Bombardier Inc. Challenger 650 business jets and two customized 737 narrowbodies to help oversee the planemaker’s sprawling operation. Boeing requires its chief executive officer to avoid commercial flights for security reasons, even when on a personal trip.
Then in mid-September, new CEO Kelly Ortberg grounded much of the corporate fleet in an early cost-cutting move. Executives were instead told to fly economy on scheduled airline flights.
At the time, a strike had shut down Boeing’s commercial manufacturing and the company was in dire need of cash. The flying restrictions, combined with work furloughs and layoffs, sent a message of frugality as Ortberg worked with bankers to raise $24 billion to fund its comeback.
“To some degree, I think he was trying to get people’s attention,” said George Ferguson, analyst with Bloomberg Intelligence. “He’s trying to show some of the shared sacrifice.”
The savings wouldn’t move the needle for a company with a $58 billion debt load, said aviation consultant Brian Foley, who estimates Boeing spends about $15 million per year flying its executives around. But at a time when the company was cash-strapped and factory workers in open revolt about what they viewed as measly paychecks, the move sent a clear message from the new boss.
Boeing’s executive fleet operated just 29 flights in October, an 85% decrease from a year earlier, according to a Bloomberg analysis of flight data compiled by Flightradar24. That’s down from 56 in September and 146 in August, when Ortberg joined Boeing as CEO with a mandate to turn around the troubled planemaker.
While Boeing is starting to ease its travel crackdown, the tactics provide a glimpse into the priorities and management ethos of the new CEO. Boeing slashed spending on everything from advertising to consultants and catering in September as financial pressure intensified from the strike, which lasted seven weeks.
It’s a theme Ortberg has repeated over his short tenure.
“We need to reset priorities and create a leaner, more focused organization,” he said on an Oct. 23 conference call.
Ortberg is taking steps to permanently shrink Boeing’s costs, eliminating 17,000 jobs that include management, and drawing up a list of non-core businesses to potentially sell or shutter.
“Headcount was clearly bloated and so was the cost structure,” said Sheila Kahyaoglu, an analyst with Jefferies LLC. She estimates Boeing could raise as much as $12 billion by shedding assets such as its Jeppesen and ForeFlight navigation businesses.
Boeing, which declined to comment for this story, scrapped its annual rooftop soiree for the Singapore Grand Prix in September, typically a lavish affair near the Formula 1 racetrack. In past years, the company provided a generous spread of catering, free-flowing drinks and complimentary tickets for guests.
Party pullback
Boeing also yanked its longtime sponsorship of the Washington International Horse Show in October, and skipped China’s first commercial and defense air show in November. It was a no-show this month as Brunei hosted the annual gathering of Asian airlines.
Ortberg’s edict has curtailed flights to Boeing’s major operations centers in Seattle (commercial planemaking); Washington (corporate headquarters, defense arm); and Dallas (services unit).
The prior set-up made it easy for top executives to commute from afar. Former CEO Dave Calhoun flew in from homes in New Hampshire and South Carolina, and his senior leadership team was scattered in places like Connecticut and Toronto.
Flights have fallen off to Charleston, South Carolina, and nearby Savannah, Georgia; White Plains, New York, close to Chief Financial Officer Brian West’s Connecticut home; and Toronto, where information technology head Susan Doniz is based.
Calhoun, West and Doniz declined to comment for the story, a Boeing spokesperson said.
While Ortberg, like his predecessors, must travel in a private jet, he is relocating to Seattle.
By Foley’s calculation, the company pays about $4,480 in total variable costs for each hour a Challenger 650 spends in flight, or about $1.5 million a year per plane. For each 737, hourly operating costs average about $9,685, or $3.7 million annually.
The estimates cover fixed costs like crew salaries, insurance and the 50,000-square-foot hangar at Chicago Gary International Airport where the jets are housed.
In all, Boeing has ownership stakes in 22 business jets, turboprops and helicopters that also support flight-testing and engineering. The total includes fractional interests in two Challenger 650s operated by NetJets Inc., according to data provider Amstat.
With Ortberg looking to streamline, it’s likely Boeing will eventually consider divesting some of these aircraft, Foley said, and rely more on fractional holdings if executive flying is permanently reduced.
“With a person like Kelly who chose to be based in Seattle, maybe there will be less reason to go coast-to-coast if the Zoom goes out,” he said.
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