New Boeing CEO will likely slow production to hit safety measures, says Jefferies' Sheila Kahyaoglu

So what is next for Boeing and how does this all impact the stock which is down 35% this year? Joining us now Jeffries Aerospace and defense analyst Sheila Kayalu. Sheila, great to have you with us. I’m. I’m first of all curious what you thought of what happened with the whistleblower testimony today on on Capitol Hill and whether or not that adds to sort of this case that that Senator Blumenthal is putting forth that there is a culture and repeated pattern of of just quality issues. I mean clearly Boeing is struggling, right? The share price tells you Boeing is struggling. There’s CEO change in place. There’s a search for a CEO. There’s a board overhaul. So there’s a lot of things going on at Boeing that reflect the fact of the January 5th incident essentially with Alaska Airlines and the safety culture. You know that when we go back to the 20/18/19 and the two crashes that led to that 2.5 settlement as you mentioned. So clearly a lot going on at Boeing. I think the testimony today from the different panels, it’s hard to put it in context. An employee working on the 787 program later moved to the 777 program, says there’s issues on the 787 as well in addition to the 737 Max. Stepping back, the 787 has not had any major incidents. It has had a relatively decent safety culture and just let’s bear in mind Boeing is producing the 787 at a current rate of five a month. That’s very different than the pressure to up volume from you know twenty a month to 40 a month to 50 a month on the 737. So there’s a lot less volume pressure which could stem, you know, quick fixes on something like the 737 Max. So in terms of the violation of of the deferred prosecution agreement reached with the DOJ, Sheila, is that on your bingo card, I mean is, is does that factor in at all to your outlook for Boeing? Every everything is on the bingo card when it comes to Boeing, there’s always something new, You know clearly that wouldn’t be positive they they if they violated it, but just within the three years and they do have a safety system in place. It just apparently too cumbersome for people to document it, but so they do have one in place. You know, I think that would just add to the slew of issues. But regardless I think looking forward and that’s what we have to do is we’re going to have a new CEO come in. The timing of that is unknown. I think the first thing that new CEO is going to do is take out that 10 billion free cash flow target, throw it out the door for 2526 and say we’re going to slow production until we hit certain safety measures and maybe fixes into the facilities. I mean, yes, Boeing touches a lot of suppliers. Yes, each plane has a million parts, but at the end of the day, these are two big factories, one in Menton and one in Charleston that have to be managed. And of course Spirit Aerospace Systems, if they decide to take that in house which is currently, you know, in talks with Boeing to be taken out, just curious if if it is found to have violated that deferred prosecution agreement, what do you think that means for the stock? And then the next step would be if they’re found criminally liable. I mean I don’t know what fines there are. I don’t know if it involves you know, another agreement at that point the management will be involved, prior management will be involved. How do you sort of play that out? I I I think it’s hard to play it out in terms of investor sentiment and the share price performance. Clearly another Ding and a fine would be very negative for the stock in that you would have you know, additional debt in place and their debt balance is already in the $45 billion range. So that that wouldn’t be positive from that perspective. But you know Dave Calhoun is leaving not because of anything he’s done. The former management no longer is at Boeing, right. And I think what we have to take back and you know Department of Justice investigations do take a long time. Some companies in our coverage have had a decade of DOJ investigations and who this is tied to on a criminal basis is very hard to lead it up to top management. And we’ve seen plenty of turnover on the program manager lines, whether it’s the 737 Max or the 87. So I think as Senator Blumenthal said, to to pin it to somebody is just going too far ahead. And we do see these criminal investigations and these DOJ investigations last close to decades sometimes.