For members of Boeing’s executive board, catching a ride on the company’s corporate jets has long been one of the perks of the job.
The 19 senior leaders rely on five company-owned Bombardier Challenger 650 business jets and two custom-built 737 jets to help oversee the U.S. planemaker’s vast operation. Boeing requires its CEO to avoid commercial flights for safety reasons, even on personal trips.
Due to the challenging financial situation the company is experiencing, in mid-September, the new CEO, Kelly Ortberg, suspended a large part of the corporate fleet in an initial cost reduction effort. Instead, executives were told to fly economy class on scheduled airline flights.
At that time, a strike had paralyzed Boeing’s commercial production and the company was in dire need of money. The flight restrictions, combined with furloughs and layoffs, sent a message of frugality as Ortberg worked with bankers to raise $24 billion to finance his comeback.
“To some extent, I think he was trying to get people’s attention,” said George Ferguson, an analyst at Bloomberg Intelligence. “He’s trying to show some of the shared sacrifice.”
The savings wouldn’t be enough for a company with $58 billion in debt, said aviation consultant Brian Foley, who estimates that Boeing spends about $15 million a year to fly its executives. But at a time when the company was cash-strapped and factory workers were mutinying against what they saw as poverty wages, the move sent a clear message from the new boss.
Boeing’s business fleet operated just 29 flights in October, an 85% reduction from the previous year, according to an analysis by Boeing. Bloomberg from flight data compiled by Flightradar24. That number is lower than the 56 recorded in September and the 146 recorded in August, when Ortberg took over as CEO of Boeing with a mission to turn the troubled plane maker around.
Although Boeing is beginning to ease its crackdown on travel, the tactics provide a glimpse into the new CEO’s management priorities and ethos. In September, Boeing cut spending on everything from advertising to consultants to catering as financial pressure intensified due to the strike, which lasted seven weeks.
This is a theme that Ortberg has repeated throughout his short tenure.
“We need to reprioritize and create a leaner, more focused organization,” he said on an Oct. 23 conference call.
Ortberg is taking steps to permanently reduce Boeing’s costs, eliminating 17,000 jobs that include management and drawing up a list of non-core businesses to potentially sell or close.
“The number of employees was clearly bloated, as was the cost structure,” said Sheila Kahyaoglu, an analyst at Jefferies LLC. She estimates that Boeing could raise up to $12 billion by divesting assets such as navigation companies Jeppesen and ForeFlight.
Boeing, which declined to comment for this story, abandoned its annual rooftop party for the Singapore Grand Prix in September, normally a lavish event near the Formula 1 track. In recent years, the company has offered a generous buffet, unlimited drinks and complimentary tickets for guests.
The party is over
Boeing also withdrew its longtime sponsorship of the Washington International Horse Show in October, and did not attend China’s first commercial and defense air show in November. This month, the company did not attend the annual meeting of Asian airlines in Brunei.
Ortberg’s decree reduced flights to Boeing’s main operations centers in Seattle (commercial airplane manufacturing); Washington (corporate headquarters, defense arm); and Dallas (services unit).
The previous configuration made it easier for top executives to travel from afar. Former CEO Dave Calhoun flew in from his homes in New Hampshire and South Carolina, and his senior leadership team was spread out in places like Connecticut and Toronto.
Flights were down to Charleston, South Carolina, and neighboring Savannah, Georgia; to White Plains, New York, near CFO Brian West’s home in Connecticut; and to Toronto, where Susan Doniz is the director of information technology.
Calhoun, West and Doniz declined to comment for this story, a Boeing spokesman said.
Although Ortberg, like his predecessors, has to travel by private jet, he is moving to Seattle.
By Foley’s calculations, the company pays about $4,480 in total variable costs for every hour a Challenger 650 flies, or about $1.5 million per year per plane. For each 737, hourly operating costs average $9,685, or $3.7 million per year.
The estimates cover fixed costs such as crew salaries, insurance and the 50,000-square-foot hangar at Chicago Gary International Airport where the jets are housed.
In total, Boeing has 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 simplify, Boeing is likely to eventually consider divesting some of those aircraft, Foley said, and rely more on fractional interests if business flights are permanently reduced.
“With someone like Kelly, who chose to stay in Seattle, there might be less reason to go coast to coast if Zoom goes away,” he said.
