There is a trio of terrible headlines for Boeing (BA) on Tuesday morning.
First, Southwest Airlines (LUV) is reevaluating its full-year guidance given the airplane maker's troubles. Southwest says Boeing told it to expect 46 737-8 aircraft deliveries in 2024, well below the 79 737 Max deliveries the airline was expecting. As a result, Southwest "plans to reduce capacity and re-optimize schedules, primarily for the back half of 2024, which will likely result in at least a one point reduction to the Company's full year 2024 capacity plans on a year-over-year basis."
Second, is a Federal Aviation Administration audit, initiated after a door plug flew off an Alaska Airlines (ALK) 737 Max jet, that found Boeing failed 33 of 89 product audits, according to a slide presentation reviewed by the New York Times.
Third, is the news that a whistleblower named John Barnett, a former quality control engineer at Boeing, was found dead on March 9 of an apparent self-inflicted gunshot wound, according to reports. Just days before his death, Barnett had given statements in an ongoing whistleblower lawsuit against the company.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Stephanie Mikulich.
Video Transcript
BRAD SMITH: Boeing is under pressure this morning after "The New York Times" reports an FAA audit of the manufacturer's 737 Max production found dozens of issues. "The Times" report reveals the company failed 33 of 89 audits. The investigation coming after a door panel blew off a Max 9 plane on an Alaskan Airlines flight in early January.
Shares of Boeing are trading lower this morning. And we're seeing the negative ramifications from this Boeing incident ripple across the airline industry. Shares of Southwest Airlines declining this morning after that airline revealed it plans to cut flying capacity for the full year, citing challenges from Boeing and getting deliveries of some of its planned aircrafts. This comes after United and Delta both announced deliveries of Max 10 jets could be delayed as late as 2027 here.
And we've got team coverage, Yahoo Finance's Pras Subramanian, Alexis Keenan are here. Pras, let's start with you with what we've been able to dig into and the impact for Boeing as well as the rest of the airline operations here at this point.
PRAS SUBRAMANIAN: Yeah, Brad, you mentioned Southwest there, right? Stock kind of falling here because of that concern about capacity. So Boeing had informed them earlier that they're going to deliver only 46 737 Max jets to them as opposed to the 58 that they originally ordered. And then Southwest also said that Boeing informed them that the 79 Max planes overall that they wanted to order, a bunch of those were Max 7's. Those planes aren't even certified yet.
So some concern there about how they can get more jets to increase capacity. And this follows Alaska Air, which suffered that door plug blow out, to say its 2024 capacity is quote, "in flux," due to uncertainty around the timing of aircraft deliveries. We've heard United is looking at Airbuses, right? Some Airbus jets to compensate for that lost capacity. So Boeing really in a crisis mode here as they kind of are having problems fulfilling their order bank, but also facing some scrutiny from the FAA and also DOJ.
SEANA SMITH: Yeah, and I want to bring in Alexis on that. Alexis, what do you make of these potential legal challenges that Boeing is facing, and what that then could mean for their business strategy going forward?
ALEXIS KEENAN: Yeah, so right now, this "New York Times" report-- whether it will lead to additional legal problems for Boeing, we don't know. What this is it's "The New York Times" getting a peek at a slide presentation that gives more detail than what we knew last week on March 4th when the FAA said that there were multiple failures in Boeing's manufacturing process. And these are failures in requirements, right, they're not suggestions. They're not things Boeing should do or should be mindful of. These are manufacturing, quality control compliance requirements.
And what this "New York Times" report is saying is that after a six-week audit of that door plug incident that blew out on the Alaska Air Boeing Max 737-9 aircraft, that there were 33 failures of 89 different checks. So we're talking about just under 40% of the checks that the FAA wanted to conduct at Boeing to see if the manufacturing was on target.
Now that's just Boeing. And you add to that Spirit AeroSystems that makes the fuselage for that aircraft, separately, that had 7 of 13 of these FAA checks failing in compliance for these production line requirements. So both at Boeing and Spirit-- and of course, you also have Boeing considering right now reacquiring Spirit AeroSystems that had previously spun off years ago.
But this audit is really highlighting what we'll wait to see more. But these production failures at both of those places-- some of these details in this "New York Times" report also said that the FAA reserved mechanics at Spirit using a hotel key card to check door seals, also applying Dawn soap as a lubricant to check the door seals.
In response to all of this, Boeing tells Yahoo Finance that it would like to revert back to the regulators, to the FAA to safety authorities on this. They're not really responding directly to this report as of right now.
BRAD SMITH: And Alexis, while we have you, we do know that a former Boeing employee who previously raised safety issues over the aircraft company's production has reportedly been found dead. What more do we know about this right now?
ALEXIS KEENAN: Yes, so his name is John Barnett. He is a 32-year veteran, a quality control manager at Boeing. Now retired or had been retired prior to his body being found on March 9th in Charleston, South Carolina in a parking lot. Now he was a whistleblower-- a long-time whistleblower going back to 2017, complaining about quality issues where he worked, which was at the factory in South Carolina where the 787 Dreamliner is built.
Now he had been giving evidence in a whistleblower suit. And he was deposed by Boeing's attorneys last week. He was set to give more evidence on that Saturday when his body was discovered. A lot more to be learned here. He was dead apparently of a self-inflicted gunshot wound. However, authorities there in Charleston, they are investigating.
But he had complained in 2017. In 2019, the FAA had actually taken some actions that were asking Boeing to make some corrections that were similar to some of the things that he was complaining about. Whether they were actually tied together, we don't know at this point.
In response to Mr. Barnett's death, Boeing said we are saddened by Mr. Barnett's passing. And our thoughts are with his family and friends.
SEANA SMITH: All right, Alexis Keenan, Pras Subramanian, thanks so much for joining us in that conversation here this morning.
