Good morning.
Boeing reported yesterday that its earnings fell 21% in the first three months of the year after the grounding of its 737 Max jet, following two fatal crashes. The company backed off its earnings guidance for the year, and suspended its share repurchase program. “Due to the uncertainty of the timing and conditions surrounding return to service of the 737 Max fleet, new guidance will be issued at a future date,” it said. United CEO Oscar Munoz separately said he has “no sense” when the planes will start to fly again.
Shareholders brushed off the bad news. But I suspect things are at Boeing are going to get worse before they get better.
The company has had little to say about a report in the New York Times this weekend detailing problems at a production plant in South Carolina that produces a separate plane, the Dreamliner. That plane has an exemplary safety record. But the Times‘ reporting highlights quality control problems at the plant that were ignored by managers pushing to prevent production delays.
CEO Daily readers can be forgiven for thinking the New York Times too often takes a reflexive anti-business view. And in the age of Trump, Boeing officials may believe they can brush off the story by dismissing it as “fake news.” But I find the reporting pretty compelling. Its implication is that the company has something of a Wells Fargo problem: It has been pushing so hard to overcome production delays—and incentivizing managers to follow suit—that its historic concern with quality and safety may have been pushed to the back seat.
I’d particularly recommend the account of one whistleblower that the paper highlighted in its regular podcast, The Daily. You can listen to it here. It’s a pretty compelling tale. Boeing continues to say that it always puts safety first. But I think the company has a lot of work to do before it earns back the trust of the flying public.
More news below. And be sure to read Fortune tech guru Adam Lashinsky’s fresh take on Disney’s bold pivot to streaming services, which you can read here.
| Alan Murray | |
| @alansmurray | |
| alan.murray@fortune.com |
Top News
Facebook Fine
Facebook is expecting a fine of as much as $5 billion from the Federal Trade Commission over privacy violations that may have violated a 2011 order. The company set aside $3 billion in its quarterly earnings report yesterday, which hit its Q1 net income hard even though revenue was up by over a quarter. ABC
Tesla Loss
Tesla lost $702 million last quarter, which is more than double what analysts were expecting. The loss, which can be chalked up to the cutting of tax credits and strong competition from traditional automakers, followed two profitable quarters. "None of these issues are going away. This is the new normal for Tesla," said Autotrader publisher Karl Brauer. CNN
Ghosn Bail
Former Nissan boss Carlos Ghosn has been granted bail again and could be out of jail as early as today, assuming prosecutors aren't successful this time in opposing his release. Ghosn was indicted at the start of the week on a fresh misappropriation-of-funds charge, having been rearrested earlier while on bail. Japan Times
German Banks
Merger talks between Deutsche Bank and Commerzbank have collapsed—an embarrassment for Finance Minister Olaf Scholz, who has been trying to push them together. The failure of the talks makes Commerzbank vulnerable to a takeover from abroad, maybe by Italy's Unicredit, maybe by the Dutch ING Groep, both of which have expressed interest. Deutsche Bank's shares rose on the news, while Commerzbank's fell. CNBC
Around the Water Cooler
Norwegian Air
The financially troubled European carrier Norwegian Air has managed to secure a delay to the delivery of Boeing 737 Max jets that are on order, thanks to Boeing abovementioned woes. This means a reduction in capital spending for Norwegian, whose shares jumped as much as 5% on the news of the re-arrangement. Bloomberg
NSA Program
The NSA's controversial phone-records collection program should be discontinued, according to… the NSA. The agency's U-turn calls into question its longstanding insistence that the post-9/11 program, which it apparently hasn't used for months, was crucial for combating security threats. Wall Street Journal
U.K. Supermarkets
The proposed merger between Sainsbury's and the Walmart-owned Asda supermarket chain in the U.K. has been formally blocked by antitrust regulators. The Competition and Markets Authority decided the Sainsbury's-Asda tie-in would reduce competition and hit consumers with higher prices. Fortune
Climate Protests
The nascent Extinction Rebellion movement in the U.K. targeted the financial sector this morning, with climate-change activists gluing themselves to the London Stock Exchange entrance and a light-rail train that services the Canary Wharf banking district. Today is the final day of the movement's current protest, which has seen more than a thousand arrests. Reuters
This edition of CEO Daily was edited by David Meyer. Find previous editions here, and sign up for other Fortune newsletters here.
